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					              File reference   Report number   Date
              08-3300          PTS-ER-2008:9   18 June 2008




Dark fibre
- market and state of
competition
Dark fibre
- market and state of competition

Authors
Jenny Bohman and Thorbjörn Blomdahl (PTS)




                                            2
Foreword

The National Post and Telecom Agency (PTS) has an overall responsibility within the
area of electronic communications. PTS is working to ensure that consumers,
enterprises, organisations and public authorities in Sweden shall have access to secure
and efficient electronic communications and the greatest possible benefit regarding
the range of electronic communications services and their price and quality. The
principal means of achieving this is to establish conditions for effective competition
without any distortions or limitations.

As part of the Agency's work to promote competition, PTS has conducted a study of
the dark fibre market with a particular focus on the state of competition. The focus of
the study was to ascertain whether this market should be included among the markets
where particular obligations under the Electronic Communications Act (2003:389)
(LEK) are imposed with the aim of achieving effective competition.

Stockholm, June 2008



Katarina Kämpe, Acting Director-General




                                                                                      3
Foreword                                                                                3

Sammanfattning                                                                         10

Abstract                                                                               13

1.     Introduction                                                                    16
1.1.   Purpose                                                                         16
1.2.   Description of methods                                                          17

2.     Description of the dark fibre service                                           18
2.1.   Optical fibre                                                                   18
2.2.   Dark fibre                                                                      20

3.     Market description                                                              22
3.1.   Suppliers of dark fibre                                                         22
3.1.1. TeliaSonera is the largest owner of optical fibre                               22
3.1.2. Municipal networks are most common, but they have limited fibre coverage        23
3.1.3. New stakeholders are attempting to roll out optical fibre and become established in
       the market                                                                      23
3.1.4. Large operators have their own resources in the form of optical fibre           24
3.2.   Purchasers of dark fibre                                                        24
3.2.1. What do customers buy if dark fibre is not available?                           25
3.3.   Related retail markets                                                          25
3.3.1. Future development of higher bandwidth and optical fibre                        28
3.4.   Price trends                                                                    29
3.5.   Relevant regulation                                                             30
3.5.1. The IT policy objective                                                         30
3.5.2. The rules promoting competition                                                 31
3.6.   Problem indicators                                                              32
3.6.1. Customers' needs and their demand have little impact on the range of products and
       services                                                                        32
3.6.2. A new approach by TeliaSonera                                                   33
3.6.3. Consequences of TeliaSonera's change to the dark fibre service                  35
3.6.4. Difficulties in rolling out infrastructure                                      36
3.6.5. Summary of problem indicators in the dark fibre market                          39
3.7.   International perspective                                                       40

4.     Market definition                                                               42
4.1.   Characteristics of dark fibre                                                   42
4.2.   Potential substitutes for the dark fibre service                                43
4.2.1. Substitution assessment and market definition                                   43
4.2.2. Alternatives to dark fibre                                                      44
4.2.3. Rolling out own optical fibre                                                   45
4.2.4. Other passive infrastructure                                                    45
4.2.5. Wireless technologies                                                           46
4.2.6. Active infrastructure - wavelengths and leased lines                            47
4.2.7. Summary of the product market for dark fibre                                    48
4.3.   Definition of the geographical market for dark fibre in Sweden                  48




                                                                                        4
4.3.1. Conclusions                                                                        50
4.4.   Summary of the market                                                              50

5.     Identification of a relevant market that justifies ex ante regulation              51
5.1.   The first criterion: Impediments to establishment                                  51
5.2.   The second criterion: Market dynamics                                              53
5.3.   The third criterion: The relative effectiveness of competition law and additional ex
       ante regulation                                                                    55
5.4.   Conclusion                                                                         56

6.     Analysis of the state of competition in the dark fibre market                      57
6.1.   Distribution of market shares                                                      57
6.2.   The size of undertakings                                                           59
6.3.   Control of infrastructure that is difficult to copy and replicate                  59
6.4.   Technical advantages or technical superiority                                      60
6.5.   Lack of or low level of countervailing market power                                61
6.6.   Easily accessible capital markets and financial resources                          61
6.7.   Product and service diversification                                                61
6.8.   Economies of scale                                                                 61
6.9.   Advantages as a consequence of economies of scope                                  61
6.10. Vertical integration                                                                62
6.11. Well-developed distribution and sales networks                                      62
6.12. Lack of potential competition                                                       63
6.13. Barriers to expansion                                                               63
6.14. Summary of assessment of significant power in the dark fibre market                 64

7.     Conclusions                                                                        66
7.1.   Closing comments                                                                   69




                                                                                              5
List of Appendices

Definitions and abbreviations used                                       7
Appendix 1                                                              70
PTS's comments on the consultation   response for dark fibre            70

Appendix 2                                                              78
Extent of the Stockholm/Malmö region, the Gothenburg region and Malmö   78

Appendix 3                                                              79
Relevant markets                                                        79

Appendix 4                                                              80
Letter from the Broadband 2013 Inquiry                                  80

Appendix 5                                                              82
Utility easements                                                       82

Appendix 6                                                              85
Bibliography                                                            85
Electronic sources                                                      85




                                                                         6
Definitions and abbreviations used

2G: Second generation mobile telephony, which uses digital technology unlike the first
generation, which used analogue technology. Examples of standards for 2G include
GSM and cdmaOne.
3G: Third generation mobile telephony, which permits mobile telephony services with
a more rapid transmission rate than 2G. Examples of standards for 3G include UMTS
and CDMA2000.
Access network: That part of the electronic communications network closest to the
end user which runs from the end user's network termination point to a point where
the traffic is transferred to a network with higher capacity that is intended to transmit
large volumes of traffic. (Taken from Policy for Access Regulation of Last Mile
Networks).
Access technology: The technology used in the part of the electronic
communications network that is closest to the end user.
Backbone network: A network that links national nodes and main nodes in the
various parts of the country.
BWA: Broadband Wireless Access.
CESAR: Central system for access lines, produced by the Swedish Urban Network
Association in collaboration with Telenor, Tele2, Com Hem, the Swedish National
Rail Administration and TDC Song.
Dark fibre: This dark fibre service, which is produced using optical fibre and is
provided as a wholesale service or retail service. Dark fibre is a cable that is not lit up;
i.e., physical fibre cables without electronic equipment.
Ducting: Pipes for rolling out optical fibre cables and manholes in which the fibre
links are placed.
EDGE: Enhanced Data GSM Environment, a data packet technology for GSM
networks which increases the transmission rate.
Ethernet: a family of technologies for communication in local area networks.
Expropriation: A legal procedure in the public interest where someone is forced to
waiver a legal right in the public interest or is subject to a limitation to a legal right.
Fibre coverage: In this context, fibre coverage corresponds to the number of
kilometres covered by optical fibre; i.e., if there are several fibre pairs/ducting within
the same link, this link is only counted once.
FWA: Fixed Wireless Access
GSM: Global System for Mobile Communication. A digital mobile telephony system.
Also called 2G (second generation mobile telephony).
HSPA: High Speed Packet Access, technology for data transmission in the UMTS
network.




                                                                                              7
Interurban network: A network that connects large communities in a municipality or
region.
IP: Internet Protocol, a communication protocol that administers addresses and
routing for data packets in the Internet and other IP-based networks.
IT: information technology
Joint laying: When ducting is utilised for several purpose, e.g., electronic
communications services, power, water and sewerage.
KKV: The Swedish Competition Authority.
LAN: Local Area Network.
LEK: The Electronic Communications Act (2003:389).
LLU: Local Loop Unbundling; access to the nationwide metallic loop in accordance
with the applicable obligation decision.
LMV: National Land Survey.
Local area network: Sub loop that links property networks in one community or a
geographically delimited area to the interurban network.
Local fibre network: A network based on optical fibre, which belongs to an operator
that is active within a limited geographical area, such as a community or a region, and
which does not provide services at a national level.
Marginal cost: Economic term; expressed simply, a marginal cost is the increase in
the total costs that occurs when one (1) additional unit of a product is produced.
MDF: Main Distribution Frame.
Municipal network: A municipal network is comparable with one or more
continuous local area networks. A local area network is found within one area, such as
a housing or industrial area within a community. Models for municipal networks vary.
NGA: Next Generation Access – collective term for connections in the future
NGN: Next Generation Network – collective term for IP-based networks in the
future.
ODF: Optical Distribution Frame.
Optical cable: Refers to fibre optic cables; a number of optical fibres in a protective
sheath.
Optical fibre: Fibre-based infrastructure. Optical fibre is a thin glass line made from
silicon dioxide (glass) that transfers data via light instead of via electronic signals as is
the case in a copper line. May be found in the entire or parts of public or individual
electronic communications networks.
Passive infrastructure: Active and passive infrastructure are referred to in the chain
of refinement in terms of optical fibre. Passive infrastructure is, for example, ducting,
such as pipework for cables in addition to non-active cables such as dark fibre. See
2.1, figure in the report.
PLC: Power Line Communication, data communications across power line networks.




                                                                                                8
PSTN: Public Switched Telephony Network, the traditional fixed
telecommunications network.
PTS: The National Post and Telecom Agency.
Radio link: A 'radio link' refers to a fixed point-to-point connection using radio
technology.
SALAR: The Swedish Association of Local Authorities and Regions
SMP: Significant Market Power. Means 'significant power' in a certain relevant
market.
SSNf: The Swedish Urban Network Association
Total supply of fibre: Total number of kilometres of fibre optic links; i.e., if there are
several fibre pairs within the same link, this link is totalled.
Transmission fibre: Fibre that is used in the part of the network that is a
transmission network
UMTS: Universal Mobile Telecommunications System.
Upstream/downstream markets: In a production chain, a market where input
goods for a product market are produced are upstream in relation to the product
market in question, which in its turn is located downstream in relation to the market
where the input goods are produced.
Utility easements: A utility easement entitles someone to install and use a utility
within an area encompassed by someone else's property (including the devices
necessary for the purpose of the utility). Regulated by the Utility Easements Act.
VDSL: Very high data rate Digital Subscriber Line; see also xDSL.
Vertically integrated operator: An operator that owns operations at different levels
in a production chain; for example, both a retail and an wholesale operation.
WAN: Wide Area Network.
Wavelength: When the optical light in a fibre is divided into wavelengths and each
wavelength functions as its own channel.
Wi-Fi: A designation for wireless local area networks (LAN) based on a certain
standard.
WiMAX: Worldwide Interoperability for Microwave Access, radio-based broadband
technology based on the IEEE802.16 standard.

xDSL: Digital Subscriber Line, a collective term where x represents different
technologies; e.g., ADSL, VDSL and UDSL.




                                                                                        9
Sammanfattning

Post- och telestyrelsen (PTS) har under en tid fått indikationer på att det finns
problem på grossistmarknaden för svart fiber som behöver åtgärdas. Mot den bak-
grunden har PTS genomfört en studie av grossistmarknaden för svart fiber i Sverige,
med syfte att beskriva marknaden, vilka problem som finns och hur dessa kan lösas.
PTS har bedömt huruvida grossistmarknaden för svart fiber ska definieras som en
relevant marknad och om det finns anledning att införa särskilda skyldigheter enligt
lagen (2003:389) om elektronisk kommunikation (LEK). Även Konkurrensverket har
handlagt ärenden om svart fiber och myndigheterna har därför samverkat kring in-
hämtandet av marknadsdata.

Optisk fiber är ett medium med mycket hög överföringskapacitet som används som
transmissionsteknik i elektroniska kommunikationsnät. Den minst förädlade tjänsten
baserad på optisk fiber benämns svart fiber. Med detta avses s.k. oförädlad nätkapaci-
tet, dvs. fysiska ledningar utan elektronisk utrustning. Svart fiber används som en
insatsvara för att producera i princip alla elektroniska kommunikationstjänster och kan
användas i hela eller delar av ett sammanhängande nät. Svart fiber kan användas för
att ansluta t.ex. slutkunder för olika bredbandstjänster, samlokaliserad utrustning i
telestationer, basstationer för mobiltelefoni och en rad andra syften. Främst efterfrågas
svart fiber av operatörer som i sin tur förädlar tjänsten vidare till slutkundstjänster.
Med beaktande av de allt högre kraven på kapacitetskrävande tjänster och utveck-
lingen av de framtida IP-baserade näten och NGN/NGA har betydelsen av optisk
fiber, och därmed efterfrågan på tjänsten svart fiber, ökat. Enligt PTS bedömning
kommer efterfrågan att fortsätta att öka.

Att svart fiber är en insatsvara för många slutkundsprodukter gör att konkurrens-
förhållandena på denna grossistmarknad är av stor betydelse för konkurrensen på en
rad slutkundsmarknader. En otillräcklig konkurrens på grossistmarknaden för svart
fiber kommer att medföra negativa effekter för konsumenter av i princip alla elektro-
niska kommunikationstjänster. Det är därför av stor vikt att denna marknad fungerar
väl.

Tjänsten svart fiber ser likadan ut var än i nätet den tillhandahålls och för vilket syfte
den köps. Det är köparen av svart fiber som kopplar på den aktiva utrustningen och
därmed bestämmer hur den ska användas, vilket också skapar ett nödvändigt utrymme
för differentiering mellan köparna och utökad möjlighet till konkurrens i nästa led. Att
köparen själv ansluter den aktiva utrustningen ger även ökad kontroll vad gäller teknik
(förändringar vad gäller kapacitet, typer av tjänster, lösningar för tjänster), affärsmässig
kontroll (priset för att producera tjänster och möjligheter till förändrad paketering av
tjänster till kunder) och servicenivå samt kvalitetskontroll (genom att vara mindre
beroende av t.ex. den servicenivå och kundtjänst som någon tjänstetillhandahållare av
mer förädlade tjänster erbjuder). Detta kombinerat med fiberns höga överförings-
kapacitet gör att de alternativ till att köpa svart fiber som finns, såsom våglängds-
tjänster, hyrda förbindelser, radiolänk och kopparförbindelser, inte kan fungera som
substitut för en operatör som efterfrågar svart fiber.




                                                                                         10
Grossisttjänsten svart fiber efterfrågas på alla nivåer i elektroniska kommunikationsnät
och över hela landet på ett likartat sätt. Svart fiber tillhandahålls på ett likartat sätt över
hela landet, vilket är en respons på hur efterfrågan ser ut. Sammantaget får grossist-
marknaden därför anses vara nationell, även om tillgången delvis varierar över landet
och i olika delar av nätet. Marknadens utveckling medför att såväl produktavgränsning
och geografisk avgränsning kommer att vara en väsentlig fråga i samband med fort-
satta bedömningar av marknadssituationen.

Idag finns det olika ägare till optisk fiberinfrastruktur. TeliaSonera är den i särklass
största enskilda ägaren av optisk fiberinfrastruktur och kontrollerar ca 50 procent av
all fiber i Sverige. Andra större ägare är vissa lokala stadsnät, nätägare som Banverket,
Vattenfall och Svenska Kraftnät samt i mindre utsträckning andra traditionella opera-
törer såsom Telenor, TDC och Tele2. Det finns även mindre aktörer som t.ex. IP-
Only som innehar viss fiber. Endast en liten del av den optiska fibern tillhandahålls
dock till andra operatörer i form av svart fiber.

För närvarande finns det ett efterfrågeöverskott på svart fiber, vilket är en konsekvens
av dels bristande tillgång till den optiska fiber som finns, dels bristande marknads-
förutsättningar för etablering och tillgång till ny infrastruktur.

TeliaSonera har under de senaste två åren ändrat strategi och begränsat sin försäljning
av svart fiber till grossistkunder, samtidigt som efterfrågan ökar, vilket är en orsak till
bristande tillgång till befintlig fiber. TeliaSoneras stora andel av den fiber som finns
etablerad i Sverige pekar på att bolaget har ett betydande inflytande på grossist-
marknaden för svart fiber. Andra faktorer som stöder den bedömningen är att
TeliaSonera är den enda aktör som har såväl nationellt stamnät och ortssamman-
bindande nät som områdesnät i samtliga delar av landet, att TeliaSonera har fördelar i
form av tillgång till kanalisation, befintliga avtal m.m. som underlättar nyetablering
samt att TeliaSonera har fördelar genom sin storlek och sin egenskap av vertikalt inte-
grerad operatör. Sammantaget får TeliaSonera anses ha en sådan ställning på grossist-
marknaden för svart fiber att bolaget vid en fråga om förhandsreglering skulle anses
ha ett betydande inflytande.

Förutom TeliaSoneras optiska fiber har det byggts ut en hel del fiber de senaste åren
främst genom etableringen av stadsnäten. Utbyggnaden av dessa beräknas fortsätta
om än i lägre takt. Det förefaller också som att stadsnäten har en alltmer positiv in-
ställning till att erbjuda svart fiber som grossisttjänst i större utsträckning än tidigare.
Stadsnäten arbetar för att bli allt mer likformiga i sina erbjudanden. Numera finns t.ex.
ett webbaserat förfrågningssystem till vilket flera stadsnät är anslutna, vilket under-
lättar för operatörer som ofta köper fiber från flera olika stadsnät. Dessa infrastruktur-
ägare kan dock, än så länge, endast ses som komplement till TeliaSonera och ej på
egen hand tillgodose det behov som marknadens aktörer har.

Alternativet för en operatör som inte får köpa svart fiber i den utsträckning som be-
hövs är, att anlägga egen fiber. Detta är förenat med en rad svårigheter av såväl struk-
turellt som regleringsmässigt slag. Att anlägga fiberinfrastruktur innebär stora inve-
steringar och hög ekonomisk risk som vissa aktörer dock visat sig villiga att ta i vissa




                                                                                            11
områden. Förutom dessa hinder av ekonomisk och strukturell art tillkommer också
regelmässiga hinder, såsom svårigheter att få nödvändiga tillstånd och avtal.

För att lösa de problem som finns på grossistmarknaden för svart fiber anser PTS att
det är viktigt att ge bättre tillträde till den infrastruktur som finns samt att det skapas
bättre förutsättningar för att etablera den infrastruktur som krävs, och att etablerings-
hindren på marknaden minimeras för att marknaden ska kunna sköta utvecklingen på
egen hand. Vad gäller befintliga etableringshinder anser PTS att de skulle kunna sän-
kas genom att kommuner uppmuntrar samförläggning, har en god IT-infrastruktur-
planering och ett etableringsvänligt förhållningssätt till såväl fiberutbyggnad som till
konkurrens av densamma.

En utgångspunkt i regelverket kring elektroniska kommunikationer är att
konkurrensen bör ske så långt ned i produktionskedjan som möjligt. Om möjligt ska
konkurrensen ske redan på infrastrukturnivå. Det är således av betydelse för samtliga
marknader inom området elektronisk kommunikation att parallell infrastrukturanlägg-
ning sker där sådan är möjlig. PTS gör bedömningen att även om grossistmarknaden
för svart fiber är behäftad med konkurrensproblem som sammanhänger med
TeliaSoneras ställning på marknaden och att marknaden präglas av höga etablerings-
hinder finns det faktorer som tyder på att ytterligare optisk fiberinfrastruktur kan
komma att anläggas i vissa områden och därmed också ett större utbud av tjänsten
svart fiber.

Mot bakgrund av denna marknads- och konkurrensanalys anser PTS att det inte kan
uteslutas att grossistmarknaden för svart fiber kan komma att utvecklas mot effektiv
konkurrens utan att PTS inför särskilda skyldigheter på marknaden. För närvarande
anser PTS att det således saknas förutsättningar att definiera en marknad specifikt för
svart fiber. PTS kommer dock att följa marknadens fortsatta utveckling och om inte
en tydlig förändring av marknadsförhållandena blir synliga inom ett år anser PTS att
det finns anledning att på nytt analysera om särskilda skyldigheter är nödvändiga. PTS
kommer därför att följa upp den nuvarande analysen och ha ett resultat klart att redo-
visa externt under andra kvartalet år 2009, dvs. ett år från färdigställandet av denna
rapport. PTS kommer under året även att genomföra analyser av andra närliggande
marknader, såsom marknaden för nätinfrastruktur (marknad 4), marknaden för bred-
bandstillträde (marknad 5) och marknaderna för hyrda förbindelser. Detta innebär att
reglering som rör svart fiber eller på annat sätt är av betydelse för dessa närliggande
marknader kan komma att införas under det närmaste året och ha betydelse för resul-
tatet av den framtida analysen av marknaden för svart fiber.




                                                                                         12
Abstract

For some time now, the National Post and Telecom Agency (PTS) has received
indications that there are problems in the dark fibre market that need to be attended
to. In light of this, PTS has conducted a study of the dark fibre market in Sweden,
with the aim of describing this market, the problems that exist and how these may be
resolved. PTS has assessed whether the dark fibre market should be defined as a
relevant market and whether there is reason to impose special obligations under the
Electronic Communications Act (2003:389). The Swedish Competition Authority
(KKV) has also dealt with matters concerning dark fibre and for this reason the
authorities have collaborated when compiling market data.

Optical fibre is a medium that has a very high transmission capacity and which is used
as a transmission technology in electronic communications networks. Dark fibre is the
least refined service based on optical fibre. It refers to what is known as 'raw network
capacity'; that is, physical cables without electronic equipment. Dark fibre is used as an
input good for basically all electronic communications services and can be used in
parts of or an entire interconnected network. For example, dark fibre can be used to
connect end users to various broadband services, collocated equipment in local
exchanges, base stations for mobile telephony and for a number of other purposes.
Dark fibre is primarily in demand by operators, which in turn further refine the service
for end-user services. Taking into account the increasingly high demands being placed
on services that require capacity and the development of future IP-based networks
and NGN/NGA, the significance of optical fibre, and thereby the demand for the
dark fibre service, have risen, and in the assessment of PTS such demand will
continue to rise.

The fact that dark fibre is an input good for many retail products means that the
competitive conditions in this market are crucial for competition in a number of retail
markets. Insufficient competition in the dark fibre market will entail a negative impact
for consumers as regards basically all electronic communications services.
Consequently, it is extremely important for this market to function well.

The dark fibre service looks similar wherever it is provided in the network and for
whatever purpose it is purchased. Dark fibre is connected to active equipment by
purchasers and they are consequently the ones that decide how it should be used,
which also creates the necessary scope for differentiation between the purchasers and
a greater potential for competition at the next level. Combined with the high
transmission capacity of this fibre, this means that the alternatives to purchasing dark
fibre, such as wavelength services, leased lines, radio links and copper connections,
cannot serve as a substitute for an operator that has requested dark fibre.

Dark fibre is similarly in demand at all network levels and throughout the country.
Dark fibre is being provided in a similar way throughout the country, which is a
response that reflects this demand. Overall, the wholesale market is therefore deemed
to be national, even though access to it varies somewhat across the country and in
various parts of the network. Market development means that definitions in terms of




                                                                                       13
both products and geography will be an essential area in conjunction with continuing
assessments of the market situation.

There are currently various owners of optical fibre infrastructure. TeliaSonera is by far
the largest single owner of optical fibre infrastructure, controlling approximately 50
per cent of all fibre in Sweden. Other major owners include certain local municipal
networks and, to a lesser extent, other traditional operators such as Telenor, TDC and
Tele2. There are also smaller stakeholders such as IP-Only, which owns some fibre.
However, other operators are only provided with a small proportion of optical fibre in
the form of dark fibre.

There is currently excess demand for dark fibre, which is partly a consequence of a
lack of access to the optical fibre available and partly due to insufficient market
prerequisites for establishment and access to new infrastructure.

Over the past two years, TeliaSonera has changed its strategy and limited its sales of
dark fibre to wholesale customers at the same time as demand has increased; this is
why there is a lack of access to existing fibre. TeliaSonera's large share of the fibre
established in Sweden indicates that the company has significant power in the dark
fibre market. Other factors supporting this assessment include the fact that
TeliaSonera is the only stakeholder with a national backbone network as well as
interurban and local area networks in all parts of the country, the fact that TeliaSonera
has advantages in the form of access to ducting, existing agreements, etc., which
facilitate new establishment, and the fact that TeliaSonera has advantages due to its
size and its capacity as a vertically integrated operator. Overall, TeliaSonera is regarded
as having such a position in the dark fibre market that the company should be deemed
to have significant power in connection with ex ante regulation.

Besides TeliaSonera's optical fibre, a great deal of fibre has been rolled out over the
past few years, mainly through the establishment of municipal networks. This rollout
is expected to continue, albeit at a slower rate. It also appears that municipal networks
have an increasingly positive attitude towards offering dark fibre as a wholesale service
to a greater extent than previously. The municipal networks are striving to make their
offerings more uniform. There is now, for example, a web-based system for inquiries,
to which several municipal networks are connected, which facilitates the work of
operators that often purchase fibre from several different municipal networks.
However, until now, these owners of infrastructure have only been viewed as
complements to TeliaSonera and cannot meet the needs of market stakeholders on
their own.

The alternative for an operator that cannot purchase dark fibre to the extent required
is to roll out its own fibre. A number of difficulties are associated with this in terms of
both structure and regulation. Rolling out fibre infrastructure entails considerable
investments and a high level of financial risk, which some stakeholders have
nevertheless been willing to bear in certain areas. Besides these financial and structural
barriers, there are also regulatory barriers, such as difficulties in obtaining the
necessary licences, permits and contracts.




                                                                                        14
In order to resolve the problems present in the dark fibre market, PTS is of the view
that it is important to foster better conditions for establishing the infrastructure
required and that the barriers to entry in the market are minimised so that the market
can deal with its development on its own. As regards the existing barriers to entry,
PTS is of the view that these could be reduced by municipal authorities encouraging
joint laying, having satisfactory IT infrastructure planning and an approach that
encourages the establishment of both fibre rollout and competition for the same, if
this is financially feasible. PTS also assesses that, even if the dark fibre market is
encumbered with competition problems related to TeliaSonera's position in the
market and the market is characterised by considerable barriers to entry, there are
factors suggesting that additional optical fibre infrastructure can be rolled out in
certain areas and thereby also a wider range of the dark fibre service.

In light of this market and competition analysis, PTS considers that it is possible that
the dark fibre market can start to move towards efficient competition without PTS
having to introduce special obligations in the market. PTS consequently considers that
the conditions for defining a market for dark fibre are not met at the present time.
However, PTS will monitor the continuing development of this market and, if a clear
change in market conditions is not visible within one year, PTS considers that there
will be justification to reanalyse whether special obligations are necessary. For this
reason, PTS will follow up the present analysis and have the results ready for
publication in the second quarter of 2009, that is, one year from the completion of
this report. During the year, PTS will also conduct analyses of other adjacent markets,
such as the market for wholesale (physical) network infrastructure access (Market 4),
the market for wholesale broadband access (Market 4) and the markets for leased
lines. This means that regulation pertaining to dark fibre or which in some other way
is of importance to these adjacent markets may be introduced in the next twelve
months and have bearing on the results of the future analysis of the dark fibre market.




                                                                                     15
1.        Introduction
1.1.    Purpose
The markets within the field of electronic communications have long been viewed as
having certain characteristic features, which means that they have a particular need for
special regulation to promote competition. Part of the background to this are the
monopoly conditions that previously prevailed within the field of telecommunications.
This is in addition to certain special conditions, which make it difficult for new
stakeholders to enter and operate in the market. Access to extensive electronic
communications networks is crucial for the majority of electronic communications
services to be able to offer these services to undertakings, organisations and consumers.
At the same time, rolling out the infrastructure for electronic communications services is
often very costly. This means that the stakeholders that already own networks may, for
example, exclude others from their networks or set the price for using their networks at
such a high level that other stakeholders find it difficult to compete. In order to rectify
these problems, a special regulatory framework to promote competition has been drawn
up within the European Union. It has been designed so that the national regulatory
authorities, in consultation with the European Commission, define the markets that have
such characteristic features that they are in need of ex ante regulation. In Sweden, the
regulatory framework has been implemented through the Electronic Communications
Act (2003:389) (LEK).

According to Chapter 8, Section 5 of LEK, PTS shall continuously determine which
product and service markets have such characteristic features that it may be justified to
introduce special obligations under this Act. In this connection, PTS shall comply with
the Commission's Recommendation on relevant markets. The Recommendation lists a
number of markets that typically have such characteristic features that there is reason to
impose rules to promote competition. PTS must examine whether these markets are in
need of such regulation in Sweden as well. However, the list contained in the
Recommendation is not intended to be exhaustive and PTS may deviate from the
Recommendation and identify a market that has not been mentioned if there is reason to
do so on the basis of national circumstances. However, as stated in Chapter 8, Section 10
of LEK, the Commission is required to approve PTS's decision.

The wholesale market for dark fibre is not included in those markets specified as relevant
by the Commission in its Recommendation (see the list in Appendix 3). In late 2006 and
early 2007, PTS received quite a number of complaints from various operators
concerning the opportunities for gaining access to dark fibre. The background was mainly
that TeliaSonera had changed its range of products in such a way that other market
stakeholders found it considerably more difficult to purchase dark fibre. After having met
with TeliaSonera, several other operators and the Swedish Competition Authority, PTS
decided to initiate a market analysis according to the rules contained in LEK, as the
information received by PTS suggested that competition was not working in a satisfactory
manner.

The purpose of this report is to describe the wholesale market for dark fibre in Sweden,
to identify the problems that are present in the market and also whether these should be
viewed as competition problems. Furthermore, there is a description of the causes and
consequences of the problems in addition to the areas that may need further investigation
in order to resolve these problems. The starting point of this work was to assess whether
such competition problems exist to justify defining a special market for dark fibre and


                                                                                         16
introducing regulation in this market. This work has also involved discussions about areas
affecting the electronic communications market, but which are not directly governed by
LEK. It should be noted that this analysis is being carried out alongside the analyses
conducted by PTS of the markets included in the Commission's Recommendation and
does not in any way replace these or anticipate their result. On the contrary, the question
posed in the analysis was to determine whether there are any reasons to define a special
market for dark fibre in addition to the markets contained in the Recommendation.

1.2.    Description of methods
As a basis for this study, PTS conducted a regular dialogue with the various market
stakeholders such as operators and interest groups in addition to other authorities such as
the National Land Survey (LMV) and the Swedish Competition Authority (KKV). As
KKV has also had cases encompassing dark fibre, the authorities consulted regularly
during this work. Together with KKV, PTS also conducted a quantitative market study
about dark fibre in addition to related areas such as ducting, wavelengths and leased lines.
This study was conducted during the period October to December 2007 and PTS
obtained information for the whole of 2005 and 2006 in addition to the first six months
of 2007. The result of this study was used in calculations, including the extent of different
services, access to infrastructure, the stakeholders' market share of different services and
markets in addition to information about coverage.

The report was published on 25 March 2008 as a draft report and the market stakeholders
were given the opportunity to submit their views on the draft over a period of one
month. A total of nine consultation responses were received. These views have resulted
in the report being clarified in some respects. Appendix 1 contains a list of these
clarifications in addition to the views that gave rise to them.




                                                                                          17
2.         Description of the dark fibre service

2.1.       Optical fibre
Optical fibre is a medium that has a very high transmission capacity and which is used as
a transmission technology in electronic communications networks. Fibre cables are
usually buried underground and this generally requires ducting; that is, pipes in which the
optical fibre is laid. The cables can be rolled out underground, either by
excavation/ploughing or by drilling. Excavation ruins the ground and this must be
rectified, which means that stakeholders sometimes choose to drill into the ground.
Drilling is mainly used in major towns where digging would otherwise entail considerable
damage at road junctions, paving stones and where there are complicated road and
excavation conditions. Rolling out the ducting for optical fibre, regardless of whether this
involves excavation or drilling, is in its turn associated with high costs, far exceeding the
cost of the fibre cable itself, which only constitutes between five and fifteen per cent of
the total rollout cost. This also means that this type of investment entails high costs. It is
a long-term investment where the return on the capital invested should be viewed over a
long period of time, often 20 years. Fibre cables are sometimes placed above the ground
by being installed in existing overhead power lines and by using existing ducting within
and between buildings. Fibre in overhead lines generally has a shorter lifespan than fibre
buried underground.

Optical fibre is compatible with other technologies and can be used in the entire or parts
of a continuous electronic communications network. This means that a continuous
network may, for example, comprise optical fibre in the national backbone network to be
connected later to optical fibre or wireless technology in interurban networks and finally
to copper in local area networks. Connections to other technologies can take place at
different locations in the network.

The occurrence of optical fibre varies. Generally, fibre is mainly used where large
quantities of electronic communications services are to be transmitted. Consequently,
fibre is used in major national transmission routes, but is also increasingly being used as
transmission network capacity for connection to the networks of other operators and for
end-user access. Access to optical fibre varies depending on the geographical area; this is
due to the various investments of stakeholders when rolling out optical fibre in relation to
other transmission technologies and customer bases. The operators' backbone network is
largely based on fixed infrastructure in the form of optical fibre, but optical fibre is also
increasingly being used to connect individual business users in addition to connecting
access nodes in both fixed and mobile networks. Virtually all major operators, fixed
network operators and mobile network operators use optical fibre when producing
electronic communications services for end users.

Taking into account the increasingly high demand for services that require high capacity
and the development of future IP1-based networks and NGN/NGA,2 the significance of
access to fibre-based infrastructure has increased and will continue to increase. The new
technology networks assume that several different types of service are to be transmitted
in a common logical network where IP carries all of these services. For example, this
means that optical fibre is required closer to the end user and to some extent also in the

1   Internet Protocol
2   NGN: Next Generation Networks; NGA: Next Generation Access


                                                                                            18
access network. Optical fibre will become essential between the backbone networks and
access networks, and fibre is increasingly being used for access in connection with the
construction of new buildings. PTS has already observed that optical fibre is increasingly
required to connect access nodes (for example, to connect LLU and for base stations in
mobile networks) and end users demanding high capacity. The further out in the network
(i.e. the closer to the end user), the more alternatives there are to optical fibre. This is
because:

       •   other technologies are being used for end-user access lines;
       •   optical fibre has not become established;
       •   optical fibre is available, but access to this fibre has not been granted;
       •   it is too expensive to roll out optical fibre.
The reason for this is that other technologies, such as copper (xDSL), coaxial and
wireless (WiMAX, FWA, 2G/3G) technologies, can also be used for some of the
electronic communications services that are currently being used by end users. The closer
one gets to the end user in an electronic communications network, the fewer users will
share the fibre capacity and for this reason the income base will shrink, making it more
difficult to achieve a positive financial cost estimate for an infrastructure which requires
as much investment as optical fibre.

In 2006, a certain amount of optical fibre was rolled out in Sweden (two per cent).
However, this rate of growth has halved since the two years prior to this. The main
reason behind this was that fibre was established earlier owing to municipal authorities
and Svenska Kraftnät being granted central government broadband support. This has
now been reduced. Municipal authorities and municipal companies represent the highest
rate of growth, but, of the other stakeholders, TeliaSonera is by far the largest stakeholder
rolling out fibre.3

From an end-user perspective, the services that can be obtained through fibre optic links
are virtually all of the electronic communications services, such as the distribution of
television channels, telephony, video services, video communications, interactive tools,
games, payment services, etc. As a fibre optic infrastructure is also used to some extent as
a component of the mobile networks in the form of transmission between the base
stations, optical fibre also represents an input good when producing electronic
communications services in the mobile networks.

However, far from all operators that use optical fibre have their own fibre. Instead, it is
very common for operators to purchase access to fibre from someone else. This access
may take place in several ways and at a large number of different levels of refinement, as
shown in the figure below.




3   Broadband in Sweden 2007, PTS-ER: 2007:17


                                                                                          19
                                  Slutkundsprodukter – ex.
                                  Internetaccess, TV-
                                  kanaler, telefoni.



                                  Slutkundsanslutning - ex.
                                  hyrda förbindelser,
                                  bitströmsaccesser.



                                  Transmission – aktiverade
                                  kablar, ex. upplyst fiber,
                                  våglängder.



                                  Kabel – ej aktiverade
                                  kablar, ex. svart fiber.




                                  Kanalisation – ex. rör för
                                  kabel.




[Text for figure:
End-user products – e.g. Internet access, television channels, telephony
End-user connections – e.g. leased lines, bitstream access lines
Transmission – activated cables, e.g. ‘lit up’ fibre, wavelengths
Cables – non-activated cables, e.g. dark fibre
Ducting – e.g. pipes for cables]


Figure 1         Chain of refinement for optical fibre


In the figure above, the two lower levels (cables and ducting) represent passive
infrastructure while those higher up the chain of refinement represent active
infrastructure.

2.2.       Dark fibre
Dark fibre is the least refined electronic communications service based on optical fibre. It
refers to what is known as 'raw network capacity'; that is, physical cables without
electronic equipment. Even if optical fibre is used as a technology in the existing
infrastructure for electronic communications services, only a small proportion of the
optical fibre is sold on in the form of the dark fibre service. Dark fibre is usually sold as a
wholesale service, but is also sold as an end-user service. The demand for dark fibre
comes mainly from operators using dark fibre in their own businesses (that is, as an input
good for producing electronic communications services) and it is normally leased in pairs
(one or more fibre pairs). The extent of the service varies, but encompasses one or more
points of interconnection (nodes) in the network owner's network. In most cases, the
offering often extends no further than up to what is known as an 'optical distribution
frame' (ODF), which is the 'destination station'. No active equipment is included; on the
other hand, supplementary services are often offered in the form of reinforcement of


                                                                                            20
lines that extend over a long distance, space in a cabinet or space for a cabinet, in addition
to electric power. The dark fibre service looks similar regardless of where it is provided in
the network and how the operator will use it.

The fact that dark fibre is sold without electronic equipment means that the stakeholder
purchasing dark fibre must itself connect the active equipment required in order to have
the fibre lit up. The more control a stakeholder has over the active equipment, the greater
freedom the stakeholder has to develop new offerings and to further develop existing
ones for its customers. This means that the stakeholder can differentiate itself from other
stakeholders to a greater extent, which enables greater scope for competition. The
stakeholder will not have a corresponding capacity if it can only lease more refined
wholesale services, such as leased lines and wavelengths, as it will then become more of a
distributor of capacity. In the event of changes such as upgrades, changes in quality and
changes in capacity, the stakeholder leasing the more refined wholesale service usually has
to place an order with its supplier first before the stakeholder in its turn can supply its
customers with a changed service. A more refined wholesale service does not result in
corresponding benefits in the form of control and flexibility. PTS has observed that the
greater control a stakeholder has over the active equipment, the greater the scope for
competition.




                                                                                           21
3.          Market description

The optical fibre currently being used in electronic communications networks has
become established for various purposes: to be used for one's own purposes or to be sold
on as a product/service in a raw or refined form. The raw wholesale dark fibre service is
a small proportion of all of the fibre infrastructure that is available. According to market
data compiled by PTS for this market analysis, sales of dark fibre amounted to SEK
720m in the first six months of 2007. This would correspond to SEK 1.44bn for a full
year, which may be compared with SEK 1.37bn for the whole of 2006 and SEK 1.25bn
for the whole of 2005. In other words, growth was approximately six per cent in the past
year and nine per cent in the year before. Sales of dark fibre as a wholesale service
constitute 83 per cent of the total value, with the remaining 17 per cent constituting
revenues from end users. Most wholesale customers are large and small operators in
addition to other infrastructure owners.4

3.1.        Suppliers of dark fibre
Potential suppliers of dark fibre could be any of the stakeholders that own optical fibre
infrastructure. These include operators with their own optical fibre, municipal networks,
network owners with access to their own infrastructure for a reason other than for the
production of electronic communications services (such as, for instance, the Swedish
National Rail Administration and Vattenfall) in addition to stakeholders whose only
business concept is to establish and sell infrastructure based on dark fibre. However, it
cannot be assumed that there will be a supply of the dark fibre service where optical fibre
infrastructure is present, as far from all owners of fibre infrastructure offer dark fibre to
others. According to PTS's latest survey, approximately 100 stakeholders offer dark fibre
as a service in Sweden, and just over 80 per cent of these offer dark fibre as a wholesale
service. However, with the exception of major stakeholders, such as TeliaSonera, TDC,
Telenor, Tele2, Stokab, Vattenfall and some of the larger municipal networks, only a few
stakeholders have offered dark fibre to a considerable extent up to now, and only a dozen
or so municipal networks have annual revenues of more than SEK 4 - 5m. The average is
approximately SEK 2m per year with a median of less than SEK 1m per year. The extent
of a network owner's range varies depending on where it is physically possible to offer
dark fibre; that is, where fibre is present and where capacity is available. Only a limited
proportion of existing operators have their own fibre infrastructure. Instead, most lease
from existing fibre owners.

          3.1.1.    TeliaSonera is the largest owner of optical fibre

TeliaSonera is the only stakeholder with access to a national and comprehensive
infrastructure; that is, both ducting and fibre in backbone networks, interurban networks
and local area networks. TeliaSonera accounts for 53 per cent of the total supply of
optical fibre in Sweden5 and approximately 47 per cent of the coverage of all optical fibre.
TeliaSonera does offer fibre links to a certain extent, but this range has reduced owing to
TeliaSonera having changed its strategy for its wholesale operation in February 2006; see
also Section 3.6.2. TeliaSonera's market share in terms of sales of dark fibre amounted to
26 per cent for the first six months of 2007. TeliaSonera also has access to widespread
ducting, which is a consequence of the company's status as a former monopolist and its
ownership of the national metallic loop. This gives TeliaSonera considerable advantages

4   PTS has conducted evaluations for the full years of 2005, 2006 and the first six months of 2007
5   Broadband in Sweden 2007, PTS-ER-2007:7


                                                                                                      22
in terms of the further establishment of high-capacity infrastructure as well as an
advantage from established land-lease agreements with land owners; for example with
municipal authorities. It should be noted that new technology is being developed so that
copper cables can be replaced by fibre cables in a relatively straightforward way. If this
technology has an impact, the advantages of access to ducting will be further reinforced.

         3.1.2.   Municipal networks are most common, but they have limited fibre
                  coverage

Local municipal networks that are geographically limited offer a certain amount of dark
fibre. The largest municipal network is Stokab in Stockholm. Stokab has a unique
position among municipal networks, not only because it is the largest, but primarily
because its main aim is not to own infrastructure, but rather to ensure that infrastructure
is available. Stokab currently offers dark fibre almost exclusively. Stokab is also the only
company, besides TeliaSonera, to have been covered by the previous dark fibre regulation
under the Telecommunications Act up to and including 2003; see Section 3.5.2.

Local stakeholders currently manage approximately 150 municipal networks and these
differ from one another in terms of quality, level of service, business models and access
to infrastructure. This means that, even if the ambition of the municipal networks is to
sell to anyone, this might not be in the form of dark fibre, but is more likely to be in the
form of refined services. Nor do municipal networks always offer raw services, such as
dark fibre. In the opinion of PTS, it is desirable from a competition perspective for
stakeholders with their own infrastructure to provide access to their infrastructure as far
down the value chain as possible. The way in which municipal networks grant access to
their networks currently varies and PTS previously discussed this issue in its report
'Proposed Broadband Strategy for Sweden'.6

From the perspective of a national operator, these municipal networks are currently
mainly viewed as local alternatives to TeliaSonera, as they only provide fibre locally.
Consequently, a party wanting a connection that extends over a large geographical area
has to conclude agreements with several municipal networks. As mentioned previously,
these currently differ as regards products, pricing and quality. However, municipal
networks are attempting to make things easier for purchasers by means of greater
coordination. For example, a web-based system for dealing with queries was recently set
up and several municipal networks are now connected to it; this is called CESAR (an
abbreviation for 'Centralt system för accesser' [Central system for access lines]).

Municipal networks account for 20 to 25 per cent of the fibre coverage in Sweden. The
overall market share of municipal networks for sales of dark fibre amounted to
approximately 55 per cent for the first six months of 2007, of which Stokab accounted
for more than half of this share.

         3.1.3.   New stakeholders are attempting to roll out optical fibre and become
                  established in the market

Some stakeholders are investing in rolling out their own optical fibre with a view to
serving as wholesale suppliers and offering to lease dark fibre to others. Sales are not only
aimed at other stakeholders, but also at end users. Their business concept is primarily to
establish infrastructure for a customer and attempt to secure more customers on the link

6   Proposed Broadband Strategy for Sweden, PTS-ER-2007:7



                                                                                           23
that has been established rather than to roll out infrastructure and then try to find
customers. There are relatively few of these new small stakeholders and they operate
within a limited geographical area. They rarely cover a whole urban area, but cover parts
of communities instead; this is related to the fact that network rollout, as described
above, is governed by demand. One of the problems that a new stakeholder has when
establishing fixed infrastructure is to obtain the licences and/or permits and to conclude
the agreements needed for access to land on conditions that do not impede competition
with, above all, TeliaSonera and municipal networks.

       3.1.4.   Large operators have their own resources in the form of optical fibre
Some relatively large operators such as Telenor, TDC Song and Tele2 also have access to
their own infrastructure. Their ownership results from their having invested in their own
infrastructure in the late 1990s. Their fibre assets can be found predominantly in the
backbone networks. Altogether, the fibre coverage of these three stakeholders amounts
to just under ten per cent, as do the market shares of the sales value.

3.2.    Purchasers of dark fibre
Purchasers of dark fibre are generally operators, large companies and organisations that
require high transmission rates and high capacities. This service is raw, which means that
the customers themselves must connect the equipment required to 'light up' the fibre
pair. Customers are also responsible for monitoring. Besides the fact that the operators'
backbone networks are largely based on dark fibre, wholesale customers are increasingly
using fibre in order to connect individual business users that require higher capacity or to
LAN, as well as to connect local exchanges or other access network nodes. However,
existing optical fibre is usually purchased as a wholesale service for the purpose of being
used when producing electronic communications services for end users. According to the
survey conducted by PTS, hundreds of wholesale customers and end users lease dark
fibre from infrastructure owners. However, as regards wholesale customers, only around
ten of these customers account for most of the revenues, and these comprise traditional
telecom and broadband operators.

There has been an increase in the end users' need for capacity, which has resulted in an
increase in the needs of wholesale purchasers, and optical fibre is the technology that
provides access to the highest capacity. The raw form of dark fibre also means that
purchasers of dark fibre have considerable freedom when producing services, as they
control the active equipment. This means that the operator itself can meet an end user's
changed needs by making changes to the terminal equipment. Thus, the operator does
not have to purchase a new wholesale service when demand changes. Operators can first
differentiate themselves from each other at an active level, which is a precondition for
meeting the needs of customers in the face of increasingly keen competition. This
increases the demand for fibre from those stakeholders that do not currently have their
own infrastructure. Demand is set in relation to cost/price/performance, which means
that stakeholders compare this with the alternatives. Demand is also governed by the
customer base. A wholesale customer purchases fibre to satisfy the needs of many
customers. The greater the distance, the smaller the customer base and the more demand
reduces.

Stakeholders often collaborate with each other and they are often customers, competitors
and partners in relation to one another. The fibre links of the various stakeholders are
usually joined at nodes. In practice, this type of technical collaboration means that a
customer that has a formal agreement with a dark fibre supplier may have several sub-


                                                                                         24
contractors. The suppliers' revenues from sales of dark fibre to wholesale customers
amounted to approximately SEK 600m during the first six months of 2007.

Undertakings and other organisations are also requesting dark fibre to a certain extent as
an end-user service. They plan to use fibre as a communications service on their own
behalf. The end users are mainly large companies and other organisations that demand
high-capacity transmission services, such as banks, insurance companies and large
industrial firms, in addition to municipal authorities and county councils. Dark fibre is
now also being used for end-user access in apartments and houses, which means that
tenant-owner housing associations and individual households are also dark fibre
customers. The suppliers' revenues from sales of dark fibre to end users are considerably
lower than wholesale sales and amounted to SEK 120m for the first six months of 2007,
which is approximately 17 per cent of total turnover.

       3.2.1.   What do customers buy if dark fibre is not available?
Today, instead of purchasing dark fibre, wholesale customers usually buy either capacity
services or wavelengths, which in their turn are often produced using the optical fibre
infrastructure. The market for capacity services currently has around twice the turnover
of the dark fibre market. The wavelength market is much smaller and only amounts to
one-tenth of the turnover from dark fibre. Today, wavelengths are mainly used in
backbone networks and to a limited extent elsewhere, as buyers perceive that it is
complicated to use wavelengths for network structures that are more widely distributed
and which arise in existing electronic communications networks the closer the proximity
to end-user access lines in the network. As both wavelengths and leased lines are more
refined services, customers do not enjoy the advantages that they are looking for when
demanding dark fibre.

If a wholesale customer happens to need an access service, a purchaser can choose
between LLU and a radio-based access service instead of dark fibre. This type of service
is as refined as dark fibre, but its characteristics differ in other ways; for example, lower
transmission capacities. Consequently, these technologies will not meet the needs of
purchasers requiring services that demand high capacity.

Customers could also choose to descend the ladder of refinement and, instead of
purchasing a service, purchase space in existing ducting where they can roll out their own
optical fibre. Ducting is used for different purposes; for example, to set up electronic
communications networks and for electricity, gas, water and sewerage. Sometimes, joint
laying is used (that is, ducting used for several purposes), but this is not very common.
Purchasing space in ducting is relatively rare. In a PTS survey, approximately 100
undertakings stated that they own ducting and at the same time are operating in the
electronic communications markets. However, this number is probably larger, as virtually
all municipal networks own ducting, but only approximately 15 of them offer the space in
them to other stakeholders and even fewer have any customers. The turnover from sales
of ducting space amounted to just under SEK 10m in 2006.

3.3.    Related retail markets
The retail markets related to the wholesale dark fibre market encompass all electronic
communications services. This is based on the characteristics of dark fibre; that is, the
fact that dark fibre is an input good when producing electronic communications services.
The demand for optical fibre infrastructure is rising sharply, as is the demand for the dark
fibre service at a wholesale level. This is because end users of electronic communications


                                                                                            25
services are demanding increasing capacity and more services. Thus, understanding the
need for optical fibre-based infrastructure and the dark fibre service may be derived from
the retail markets.

End users are demanding transmission capacity so that they can use Internet services and
services such as telephony and television. Today, 84 per cent of the Swedish population
has an Internet connection at home and 69 per cent use the Internet every day. Of those
with an Internet connection, 68% have a broadband connection, which is an increase of
15 per cent compared with the previous year.7

As regards Swedish businesses, there has been an increase in access to the Internet as well
as the number of companies with high-speed connections. Ninety-four per cent of all
businesses in Sweden have an Internet connection. Nearly 90 per cent of these, with 10
employees or more, had a high-speed connection in January 2006 and one in five
businesses in this size category stated that they have at least 8 Mbit per second.8

Copper-based Internet access lines are still the most common forms of access. xDSL is
by far the most common form of access, followed by PSTN. The following figures
illustrate the allocation in the number of active customers arranged by form of Internet
access and distributed between businesses and households as at 30 June 2007.9

            Number of active customers by form of Internet access (thousands) - households
    Number of active customers (thousands))
     1600

     1400

     1200

     1000

      800

      600

      400

      200

        0
              DSL        PSTN       Cable TV    Other fixed  ISDN       Wireless
                                                 access
                                               Form of access




Figure 2: The number of active residential customers arranged by form of Internet access, 30
June 2007




7 Survey of Individuals 2007 - Swedish use of the Internet and telephony, PTS-ER-2007:26
8 Statistics Sweden, Corporate use of IT 2007 – December 2007
9 Note that the figures refer to 30 June 2007. This was followed by rapid growth, particularly in terms of

wireless-based Internet access lines.


                                                                                                             26
[Text for figure above:
Number of active customers by form of Internet access (thousands) – Businesses
Number of active customers (thousands)
DSL, PSTN, Cable TV, Other fixed access Form of access, ISDN, Wireless, Satellite]


Figure 3: The number of active business users arranged by form of Internet access, 30 June
            2007


PTS has observed that fibre as a form of access represents a small proportion of all active
access lines and is included as part of 'other fixed access' in the figures above.10

Based on the current use of electronic communications services by end users, several
access network technologies can supply most of the services that customers are
demanding. There is still great market potential for meeting the need for transmission
rates of up to and including 2 Mbit per second downstream. In PTS's report entitled
'Broadband Survey 2007',11 the basic prerequisites for various forms of access were
assessed at the end of 2007. This assessment showed that virtually 100 per cent of
residents in all urban areas have the basic prerequisites for having access to broadband
with transmission rates of 2 Mbit per second downstream. However, having the basic
prerequisites for access to broadband infrastructure is not the same thing as actually
having access to broadband. The latter means that the user must have a connection to a
network with a high transmission capacity (which may require initiatives such as
excavation work or the installation of equipment) and can obtain a subscription from a
service provider (which assumes that the service provider has the capacity to take on
another customer). Thus, it is important to emphasise that people living or working in an
area that currently has broadband infrastructure can nevertheless not always be offered a
broadband subscription. See the report entitled 'Broadband Survey 2007' for a more
detailed description of the definitions for the basic prerequisites for access to broadband
infrastructure for the various access-line technologies.

As regards wired-access network technologies, the study showed that:

•    29 per cent of the population, and 27 per cent of all workplaces, have the basic
     prerequisites for access to fibre LAN;
•    98 per cent of the population, and 94 per cent of all workplaces in the copper
     network, have the basic prerequisites for access to broadband via xDSL;
•    54 per cent of the population, and 38 per cent of all workplaces, have the basic
     prerequisites for access to broadband via cable television networks.

 Swedish Telecommunications Market, PTS-ER-2007:27
10

 Broadband Survey 2007 – a geographical overview of the basic prerequisites for access to broadband, PTS-
11

ER-2008:5


                                                                                                      27
        3.3.1.   Future development of higher bandwidth and optical fibre
Although existing technologies can currently offer end users transmission rates of 2 Mbit
per second downstream, there is much to suggest that the need for capacity is increasing
and that this will have an impact on the entire electronic communications network, but
mainly in the dedicated end-user access lines and as transmission up to the
hubs/interconnection points close to end users.

Studies concerning the use of electronic communications services by end users show that:

    •     The bandwidth requirements of households will increase further as a
          consequence of an increase in the use of services such as E-learning, interactive
          on-line games, HDTV, video communications, etc.
    •     A large proportion of businesses are imposing higher standards on transmission
          capacities, as an increasing number of people are working at a distance, more and
          more large-scale materials are being sent electronically both within and between
          companies, and businesses are on the whole making use of more qualified IT
          services within many different areas.
    •     According to information that PTS has received from various operators, the
          demand for fibre-based access lines is increasing sharply. Operators estimate that
          fibre-based access lines will account for 30 to 40 per cent of business users'
          access lines within a few years. It is also becoming increasingly common for a
          business user to require a fibre connection in its WAN.
    •     There is no doubt that the number of subscriptions and use of the traditional
          telephony service have dropped and this decline is expected to continue over the
          next five years, while IP-based telephony is growing both in terms of revenues
          and the number of subscriptions. The telephony service as such is not
          demanding in terms of capacity, but the trend shows that the technical platform
          on which the telephony service is produced is changing in relation to IP and the
          IP platform, where fibre is becoming increasingly essential.
    •     The number of mobile subscriptions and the use of services via these are
          increasing and are expected to continue to do so. In particular, mobile broadband
          services are growing. According to an assessment made by PTS, there were
          approximately 450 000 to 550 000 mobile broadband users at the end of 2007;
          this figure is expected to double within the next twelve months. This will require
          additional base stations, first in the form of masts/antennae, as well as in the
          form of transmission capacity to and from these base stations. Experts within the
          industry do not believe that there will be a sufficient number of existing
          connections to base stations, and increased capacity will be required. They
          currently believe that fibre rollout will be required for an increasing number of
          base stations.
    •     With the exception of mobile broadband connections, existing DSL-based
          connections are continuing to show growth in addition to the development of
          new xDSL technologies, such as VDSL2 and VDSL3. Cable television networks
          are also being upgraded. Altogether, this means that there will be a greater need
          for backhaul services that have a higher potential for capacity than copper.
    •     IP-based television (IPTV) – that is, television via broadband (via the metallic
          access network or via optical fibre access lines) – and video communication over


                                                                                          28
            electronic communications services are expected to grow relatively sharply in the
            coming years. According to forecast work carried out by IDC on behalf of PTS,12
            the number of IPTV customers is expected to increase to almost 764 000
            subscribers in Sweden by 2011.
       •    Growth in IT solutions may be expected within learning organisations, medicine,
            health and medical care, in addition to industry as a result of industrial
            applications. These applications also impose high standards on robust and secure
            transmission technology, as disruptions and/or interference may have a
            considerable impact on these critical applications.
       •    End users are using electronic communications services in new ways, and the
            traffic volumes both upstream and downstream will increase as a consequence of
            increased interactivity. Consequently, the need for high capacity in both
            directions is increasing.

Optical fibre does not always appear to be the only solution even if end users are
requesting services that demand increasingly high capacity and optical fibre could possibly
be the perfect answer to such demand. Other forms of access appear to have great
potential for many years to come. One crucial factor is obviously the fact that fibre as a
form of access is significantly more expensive compared with copper-based forms of
access and wireless broadband services, but also that the latter are subject to continuous
technological development.

The increased demand for services that require greater capacity will nevertheless result in
higher traffic volumes per user and an increase in the number of users of high
transmission capacities. This means higher demands are placed on networks up to the
interconnection point close to end users/end-user access lines. The increased demand for
bandwidth from end users is moving toward a need for increasingly greater amounts of
optical fibre closer to subscribers. PTS is of the view that optical fibre infrastructure will
be the main technology needed up to these interconnection points.

3.4.       Price trends
PTS has observed that there is a great variation in the price of leasing the wholesale dark
fibre service and the cost of rolling out optical fibre. This variation depends on whether
or not this location is in an urban area, where the rollout in an urban area is more
expensive, as well as on local differences.

According to information from both suppliers and customers, the general perception is
that the price of the wholesale dark fibre service has remained relatively constant over the
past two to three years. However, this does not include the consequences that have
resulted from TeliaSonera's range of services changing.

There is a considerable variation in the average price of leasing one metre of dark fibre.
In urban areas, the average price varies from SEK 1 per metre up to SEK 40 per metre;
the average price amounts to approximately SEK 10 per metre. Outside urban areas, the
average price varies from SEK 1 per metre up to SEK 25 per metre; the average price
amounts to approximately SEK 8 per metre. Besides the price per metre, there is an
additional connection charge which averages SEK 15 000; this item also varies
considerably, however, and usually costs between SEK 5 000 and 100 000.

12   Swedish Telecommunications Market - Forecasts 2007-2011, PTS-ER-2007:25


                                                                                           29
The main cost item for rolling out fibre is the cost of excavation. The cost of fibre cable
alone constitutes only some 5 to 15 per cent of the total rollout cost. The cost of rolling
out fibre varies throughout the country, as the terms and conditions for excavation differ
a great deal between municipalities; for example, as regards land contracts. Urban areas
where excavation needs to be carried out on land already covered by tarmac are the most
expensive. According to information received, the average total cost of rolling out one
metre of fibre is approximately SEK 550 per metre outside urban areas (this varies
between SEK 200 and SEK 2 000) and in urban areas on average SEK 1 000 per metre
(this varies between SEK 200 and SEK 3 000). In big cities, the average cost usually
amounts to over SEK 1 000 per metre. These costs include, for example, excavation
costs, reinstatement costs, installation materials, compensation for land, and utility
easements.

3.5.    Relevant regulation
       3.5.1.   The IT policy objective
The objective of the IT policy is that "Sweden must be a sustainable information society
for all. This implies an accessible information society with a modern infrastructure and IT
services of public benefit, so as to simplify everyday life and give women and men, young
people and old in every part of the country a better quality of life".

Central government is responsible for ensuring that this objective is fulfilled by fostering
conditions that encourage the fulfilment of the objective. The most crucial factor for
achieving the IT policy objective is access to the necessary infrastructure. Once a
functioning infrastructure market is in place, central government should take a step back
and allow general market conditions to prevail. Otherwise, central government must
provide 'help'.

One way of doing this is through actively supporting the rollout of infrastructure, as
previously realised through broadband support and the municipal set up of municipal
networks. Another way is to ensure that competition within infrastructure works
effectively, as this benefits the setting up of new infrastructure if this is economically
viable as well as an efficient use of the existing infrastructure.

When it comes to support for the rollout of infrastructure, the most well-known problem
was that consumers and businesses in rural areas and small communities did not have
access to broadband. Central government has also taken measures to attempt to resolve
this problem. However, in the assessment of PTS, the issue of access and setting up
infrastructure is clearly more wide-ranging than this and is not only limited to rural areas
and small communities.

Many operators and providers of electronic communications services are developing the
next generation of communications services, which imposes higher demands on the
infrastructure that is to carry these services. It is very likely that fixed networks will carry
those services that demand the highest capacity in the foreseeable future and that optical
fibre is currently the technology that enables operators to meet the needs of the market in
terms of services that demand higher capacity and to upgrade their electronic
communications networks for the IP-based networks of the future.




                                                                                             30
      3.5.2.   The regulation promoting competition

As described previously, several of the markets for electronic communications are
encumbered by certain in-built structural problems that impede effective competition.
For this reason, they have long been subject to certain regulation intended to promote
competition. This has been the case in certain Swedish markets ever since the
introduction of the Telecommunications Act (1993:597).

Dark fibre was also regulated previously and special licence conditions were laid down for
those stakeholders that provided what is known as 'network capacity', which included
both line capacity as well as dark fibre. This was because the rollout of fibre began
relatively early in Sweden compared with other countries, and there was both a supply of
and demand for the dark fibre service. At that time, only a few stakeholders owned fibre
in Sweden and in practice only TeliaSonera and Stokab were covered by such regulation
and, if the capacity was available, they were to provide dark fibre.

When the Electronic Communications Act (LEK) entered into force in 2003, this also
meant that the special regulation for dark fibre disappeared as the raw network capacity
was not expressly perceived to be part of any of the relevant markets. The fact that the
regulation of dark fibre had ceased had no major impact on the market initially, since
TeliaSonera continued to provide dark fibre as before. However, in 2006, TeliaSonera
began to make certain changes to its fibre sales (see Section 3.6.2), which limited the
potential for other operators to lease dark fibre from the company. The combination of
growing demand and the difficulties in meeting this demand and TeliaSonera's changed
strategy meant that it was more difficult for the other operators to gain access to the
necessary infrastructure.

It should be noted in this context that regulation in the LLU market, which may be of
significance to dark fibre, has existed since 2004. Fibre is not actually included as part of
the product market. However, since the connection between collocated equipment and
the network of the purchasing operator in the form of dark fibre is often a prerequisite
for other operators being able to purchase LLU, PTS considers that TeliaSonera still has
an obligation to provide dark fibre on special conditions in these cases. Consequently, in
July 2007, PTS ordered TeliaSonera to provide backhaul in this way in the form of dark
fibre. TeliaSonera appealed against PTS's decision and on 29 February 2008 the county
administrative court revoked the order issued by PTS. However, PTS has appealed
against the judgment of the county administrative court to the administrative court of
appeal, but the administrative court of appeal has not yet issued a decision on whether
leave to appeal should be granted.

There is also other regulation that pertains to optical fibre and which may consequently
have an impact on dark fibre. For example, the obligations in the bitstream market also
include fibre-based LAN, and leased lines, which are regulated as regards terminating
segments, can also be produced using dark fibre.

Here, it should also be pointed out that the Commission issued a new Recommendation
on relevant markets in December 2007. This Recommendation included a crucial
difference regarding the 'market for local loop unbundling'. This had previously been
defined as "wholesale unbundled access (including shared access) to metallic loops and
sub loops for the purpose of providing broadband and voice services". Instead, the new
Recommendation describes the market as "wholesale (physical) network infrastructure
access (including shared or fully unbundled access) at a fixed location". This new wording


                                                                                            31
opens up the possibility that the market for local loop unbundling may also encompass
access via an infrastructure other than the metallic infrastructure. PTS recently
commenced an analysis of the market for local loop unbundling and the result of this is
not yet ready. The outcome of this analysis could nevertheless have an impact on access
to fibre-based access networks. PTS is also analysing the markets for wholesale
broadband access (Market 5) and for wholesale terminating segments of leased lines
(Market 6). These may also be of significance to matters relating to access to fibre-based
services.

In certain cases, electronic communications networks are partially financed through
various forms of grant. These are usually issued in conjunction with a requirement on
openness; that is, that the network owner should grant other parties access to the
network. However, it goes without saying that this does not mean that an operator has to
sell dark fibre in order to comply with this requirement. In its report entitled 'Proposed
Broadband Strategy for Sweden' (PTS-ER-2007:7), PTS stated that, from a competition
perspective, it is desirable for fibre networks to be open at an infrastructural level, as this
creates the best possible preconditions for service-based competition in those cases
where the rollout of parallel infrastructure is impossible.

In this context, it should be noted that the Swedish Association of Local Authorities and
Regions (SALAR) has drawn up principles to govern municipal broadband operations.13
The aim of these principles is to support the development of active ownership control in
terms of local broadband networks owned by municipal authorities. This principal
document is not a binding regulation; instead, the intention is to offer advice and support
to municipal leaders when there is an apparent need to discuss these issues. For example,
these principles give prominence to the fact that the presence of a local broadband
network, which is available on equivalent and predictable terms, may contribute to
lowering the establishment threshold for those parties that do not own networks
themselves. It is also stated that effective competition in its turn is a prerequisite for
lower prices and better products, which in their turn contribute to the development of
government-owned and private enterprises. These guidelines thus communicate a
positive attitude towards, as far as possible, providing different operators with access to
existing infrastructure on equal terms.

3.6.       Problem indicators
         3.6.1.   Customers' needs and their demand have little impact on the range of
                  products and services

There is no general obligation to provide dark fibre. This means that it is currently up to
the suppliers, in this case the network owners, to determine the extent to which they will
provide the dark fibre service. In the assessment of PTS, the network owners have to
date not been so inclined to respond to market demand for the wholesale dark fibre
service. As mentioned previously, this applies to, for instance, TeliaSonera, but PTS
stated in its report 'Proposed Broadband Strategy for Sweden'14 that there are also a
relatively large number of owners of local fibre networks that sell services to end users
and provide other stakeholders with limited access to the basic infrastructure. Access to
and interest in providing dark fibre as a wholesale product depend on several factors, the
most important of which will be reviewed below.


13   http://www.skl.se/artikel.asp?C=723&A=50943
14Proposed   Broadband Strategy for Sweden, PTS-ER-2007:7


                                                                                             32
Obviously, one crucial factor is the actual access to fibre and ducting. Several municipal
networks have been set up for the purpose of ensuring that residents and businesses in a
municipality have access to broadband services. Thus, the original aim was not to ensure
that other service providers could purchase the wholesale dark fibre service. This has
meant that certain municipal networks have been dimensioned and set up technically to
offer more refined services and not to meet the need for and to sell the dark fibre service.

The interest in providing dark fibre also depends on whether or not this is the network
owner's core operation. Many network owners did not initially intend to sell dark fibre,
but have established it as a 'business on the side' in relation to their main business. Some
operators that own optical fibre are mainly interested in fibre for producing their own
electronic communications services. Some local network owners have carried out a
certain amount of customer adaptation towards a greater range of dark fibre offerings
outside their own operation, which can mainly be attributed to increased competitive
pressure in these very areas.

Another crucial factor is that the vast majority of wholesale suppliers are vertically
integrated and thus operate at several levels. This means that the markets downstream
compete with their wholesale customers. By limiting access to fibre, a vertically integrated
operator can consequently strengthen its position in one or more retail markets. As there
is currently no regulation, it is down to their goodwill to offer wholesale customers a
competitive service. Considering that it is often more profitable to strengthen one's
position in a retail market than to do business at a wholesale level, this goodwill is not
always significant. The regulatory framework within the electronic communications sector
has for example been drawn up especially to resolve the problems related to vertically
integrated operators. This becomes particularly meaningful when it involves a service that
is as fundamental and infrastructure-related as dark fibre, which, as described in Section
3.3, constitutes an input good for virtually all retail services within the electronic
communications sector. By limiting its competitors' access to an essential input good, a
vertically integrated operator can strengthen its position in most retail markets and even
in a number of wholesale markets.

On the whole, there are thus several reasons for a proprietor of optical fibre not to
provide dark fibre as a wholesale service despite there being a demand for this service.

      3.6.2.   A new approach by TeliaSonera

Compared with most other stakeholders, TeliaSonera is the stakeholder with the largest
assets in terms of optical fibre in its electronic communications network. Relative to
other stakeholders, TeliaSonera's fibre network is extensive and available throughout the
country. This gives TeliaSonera a very significant position in the dark fibre market.

In 1997, amendments were made to the Telecommunications Act, which made it possible
to impose requirements in the licence conditions that require an operator to provide
network capacity in the form of dark fibre if such capacity was available. TeliaSonera was
one of the operators on which such an obligation was imposed. In spite of this, several
large operators started to actively set up their own fibre-based infrastructure in the late
1990s as well as to utilise alternative stakeholders to a greater extent. The background to
this was partly due to the fact that there was very high confidence at that time that IT
would develop rapidly with a high demand for IT-related services, but one of the
objectives was also that the operators wanted to reduce their dependence on TeliaSonera.
However, the result was that TeliaSonera actively changed its range and sales in line with


                                                                                           33
the needs of other operators in order to retain its wholesale customers. TeliaSonera
offered wholesale services in both existing and new infrastructure, including digging,
excavation, ducting, new laying, splicing and connecting dark fibre where other operators
needed it at low prices. The combination of TeliaSonera's network coverage and pricing
meant that the operators chose to place an increasing proportion of their fibre
connections with TeliaSonera. Joint financing of this rollout was often involved, as the
purchasing operator often helped to pay for the rollout of new fibre. PTS has observed
that TeliaSonera consequently encouraged the operators to lease dark fibre as a wholesale
service from TeliaSonera.

The regulation of dark fibre ceased when LEK entered into force in 2003, but
TeliaSonera's provision of dark fibre as a wholesale service continued to work as well as it
had done previously. On 1 March 2006, TeliaSonera announced a change in products as
regards its range of fibre. This change meant that the company would not undertake any
measures in its wholesale operation to meet the needs of other stakeholders in terms of
dark fibre if these meant that TeliaSonera would incur costs. During the two years
following this, customers have attempted to find alternatives to TeliaSonera's fibre
network, but feel that they have not succeeded.

The company initially stated that the change would enter into force as early as
1 December 2006, but this was subsequently postponed until February 2007. On
19 February 2007, TeliaSonera stopped making any new sales of optical access fibre and
optical transmission fibre. On the same day, it began to sell the Skanova Fiber service,
which other stakeholders did not perceive as an appropriate replacement for previous
services, since it was only offered to a very limited extent. All of the operators affected
concluded an agreement regarding the new fibre-based services from TeliaSonera shortly
before this, as TeliaSonera had announced that the consequence of not concluding an
agreement would be that no requests regarding optical fibre from these operators would
be processed as of 19 February 2007. There was no real scope for negotiation.

The agreements regarding fibre-optic access lines and transmission fibre services
concluded by these customers will remain in force, but no new agreements can be
concluded for these services. This also means that when the existing agreements expire, a
change may be made to the new services and agreements. TeliaSonera has announced
that other operators will still be able to purchase fibre between the local exchanges where
optical fibre capacity is available after 19 February 2007. Operators will still be able to
connect their own fibre to all local exchanges. TeliaSonera will not continue to roll out
new fibre when so requested by an operator. If fibre is not available along the entire
section in question, the response to a request will thus be 'no'. This also applies if, for
instance, a small splicing is required. This also entails a cost for the operators, as
TeliaSonera charges for an investigation, even if the result generates a 'no'. Instead, each
operator will have to roll out new fibre capacity themselves. This has meant that a large
proportion of operators' requests are refused.

Even if fibre is used from a stakeholder other than TeliaSonera, this fibre may not be
terminated at TeliaSonera's exchange, but must be left outside the exchange building. A
special service – the laying of optical cable owned by operators – then has to be
purchased from TeliaSonera. (This is offered through a quotation and for this reason it is
not clear what the cost will be on each occasion).




                                                                                          34
Since 2 July 2007, TeliaSonera has offered the Skanova service for access line capacity,
which encompasses wavelengths, as an alternative to the now more limited range of dark
fibre. According to TeliaSonera, a factor behind the change in the range is that available
fibre is becoming scarce and the existing ducting is often full. When TeliaSonera
previously laid fibre, it was not dimensioned on the basis of today's needs, as TeliaSonera
could not foresee that the need for capacity would increase to such an extent. When
TeliaSonera now rolls out optical fibre, the company states that this is based on the
present and higher requirements for capacity.

According to TeliaSonera, another reason behind this new approach is that, even if
another stakeholder is willing to pay for, for instance, splicing, this still demands
resources as TeliaSonera needs to supplement support systems, make estimates, etc.

According to information from the operators, TeliaSonera's pricing for dark fibre has also
changed so that the basic price has been reduced, but the volume discounts have become
less advantageous. This means that large operators are now paying a higher price, whereas
small operators pay less than before.

According to the operators interviewed, no real scope was granted for negotiating the
new agreements. Instead, customers were forced to sign the agreements so that they
would not be subject to a delivery stoppage. Besides the fact that all new agreements
concerning the leasing of dark fibre will be under the new terms offered by TeliaSonera,
the previous, current agreements will gradually expire. The new agreements that will
replace them will also be signed under the new terms. In certain cases, this may radically
change the prerequisites for retail business transactions.

TeliaSonera's conduct has meant that stakeholders such as Tele2 and Bredbandsbolaget
have requested intervention from both PTS and KKV. On 14 May 2008, KKV decided
to shelve the cases after a considerable processing period, as KKV did not find that
TeliaSonera's conduct had entailed a breach of the Competition Act. As regards PTS, the
Agency stated that dark fibre is not currently regulated, other than the specific case
regarding backhaul to collocated equipment; see Section 3.5.2.

       3.6.3.    Consequences of TeliaSonera's change to the dark fibre service

PTS has observed that TeliaSonera's changed strategy and more limited range of dark
fibre has had a negative impact on other operators in the electronic communications
market. Instead of meeting the needs of its wholesale customers, TeliaSonera has
restricted access to dark fibre and offers wavelengths instead to a large extent; that is, a
service that wholesale customers do not feel corresponds to their need for the dark fibre
service.

As 60 per cent of all local exchanges have fibre connections, TeliaSonera has already
invested heavily in its own fibre network.15 TeliaSonera's previous range of wholesale
services has meant that other stakeholders set up their operations with a consequential
dependence on TeliaSonera's range of dark fibre. TeliaSonera's prioritisation of the retail
market instead of the wholesale market has had an immediate impact on other operators.
At the current time, there are no other stakeholders that can offer dark fibre with the
coverage offered by TeliaSonera and have fibre links to as many of TeliaSonera's
15There are currently just over 8 000 local exchanges, of which 5 000 offer xDSL and 3 000 do not offer
xDSL. With the exception of 200 exchanges, all of the exchanges offering xDSL also have fibre links; that is,
approximately 4 800 exchanges (60 per cent).


                                                                                                           35
exchanges, which in turn has a crucial role in terms of connection. As a consequence,
when TeliaSonera limits access to dark fibre and thus also access to its local exchanges, it
has considerable advantages in comparison with its competitors.

An additional consequence is the opportunity for operators to compete directly for
certain business segments. In the experience of PTS, the demand for fibre access lines is
increasing in the business segment where the volume of communications is relatively
high. This means that it is becoming increasingly difficult for a stakeholder to offer this
market segment more refined capacity services as a form of connection. As these
operators currently depend on TeliaSonera's wholesale services, the consequence of
TeliaSonera's conduct is that an operator does not gain access to the dark fibre service to
the extent in demand and alternative operators are then forced to offer their customers
lower capacity than they could have been offered if they were permitted to lease dark
fibre from TeliaSonera. As TeliaSonera owns and controls its own fibre infrastructure, it
has much greater potential to offer capacity based on customer needs, either through
existing infrastructure or by rolling out supplementary infrastructure on the behalf of end
users.

Since TeliaSonera states that it is dimensioning the rollout of the optical fibre
infrastructure on the basis of future needs, PTS assesses that this could suggest an
improvement in their prerequisites for a more comprehensive range of dark fibre as a
wholesale service. However, TeliaSonera's choice of conduct will govern whether or not
this will actually be the case.

      3.6.4.   Difficulties in rolling out infrastructure

In light of the fact that the demand for dark fibre is currently greater than the supply, it is
conceivable that parties other than the existing network owners will roll out optical fibre,
either for their own use or to provide others with dark fibre.

It is worth mentioning from the outset that there is no general obligation to share existing
ducting, lay jointly or to interconnect one's fibre networks. This entails considerable
difficulties for those wishing to roll out their own fibre. This will be discussed further
below.

3.6.4.1. New rollout

As described in Section 2.1 above, it is not the fibre cable itself that costs the most in this
context, but the rollout process. Rolling out fibre infrastructure is expensive and involves
a completely different operation than the one currently run by most operators. An
organisation is required with competent staff, machinery and local operation and service
personnel, licences and/or permits, and most likely a business concept to work as
wholesalers, etc. PTS has observed that most operators would require considerable
adaptation and costly investment in order to be able to start rolling out physical
infrastructure, whereas, for example, local energy companies that have access to ducting
through their operation have found it relatively straightforward to expand their operation
within the electronic communications sector as opposed to operators that do not have
any ducting. It should be noted that owners of ducting also encounter other
impediments, such as existing ducting not being present where there is a need for
electronic communications infrastructure and another operation needing to be set up
alongside the core operation.




                                                                                             36
However, as described in Section 3.1.3, there are new, smaller stakeholders that have
emerged whose business concept is to serve as wholesale fibre suppliers. These
stakeholders are concentrating on excavating and laying fibre where they perceive that
there is a customer base and thereby potential demand for dark fibre from stakeholders
wishing to provide electronic communications services. Besides the problem of achieving
profitability in this type of operation, there are also practical problems such as licences,
permits and agreements related to excavation and access to land.

A stakeholder wishing to roll out an electronic communications line can use what are
known as 'utility easement right', which entail a special statutory right to lay utilities or
enter into private property ownership agreements (land contracts) with landowners. The
Utility Easements Act (1973:1144) contains provisions on utility easements. Utility
easements entail a right, without a time limit, to have a utility on someone else's land,
which is determined by the National Land Survey of Sweden following a utility easement
formation procedure. Compensation to the landowner is decided in conjunction with
this. See Appendix 5 for a brief explanation of utility easements.

The practical application of utility easements currently has a relatively protracted
turnaround time for stakeholders in the electronic communications market. This is
because utility easement rights represent a kind of compulsory system that limits the
rights of landowners in a way that is closely related to expropriation. The legal security
aspects thus mean that high demands are placed on investigations and supporting
documentation and landowners have an opportunity to safeguard their rights. The length
of time that it takes to decide a case varies depending on its complexity, but in any event
it may take anything from a number of months up to several years. In general it can be
said that those cases that are decided the most quickly are where the landowner and
operator have reached an agreement and only want to finalise it through a utility
easement order.

Rolling out fixed infrastructure is a costly procedure and it is not financially feasible for
most stakeholders to roll out infrastructure on a speculative basis; that is, without a
particular given customer base. Under such conditions, utility easements are usually an
overly time-consuming way of gaining access to the land, particularly if there are
alternative stakeholders that can meet customer needs within a shorter time -frame. On
the other hand, utility easements may be a useful tool for large operators planning their
rollout well in advance. Similarly, already having utility easements in place is advantageous
as these apply permanently and no further licences and/or permits are required for rolling
out more fibre in existing ducting.

In order to process rollout cases more quickly than entailed by utility easements,
stakeholders usually seek access to the land directly from the landowner, which is often a
municipal authority. Municipal authorities often view utility easements as troublesome,
since they involve difficulties in connection with detailed development plans, etc., and
they prefer the flexibility offered by property use agreements. A stakeholder usually
concludes a framework agreement with a municipal authority, including a general permit
to lay fibre in a municipality; it states how this should be done and the amount of the
compensation. Then, the stakeholder applies for a permit for the respective link, which is
subsequently required and comprises more detailed agreements, such as dates, joint laying
etc.




                                                                                           37
Consequently, each municipal authority decides whether it can/wants to release land for
the establishment of infrastructure. Municipal authorities are often unwilling to do this.
Rolling out optical fibre entails a great deal of inconvenience in the form of streets being
dug up, etc., which can result in the municipal authority opposing the proposed
agreement. However, there are also indications that municipal authorities are sometimes
more inclined to permit a municipally owned municipal network. TeliaSonera sometimes
also finds it easier than new operators to conclude new agreements.

Municipal authorities can also impose a charge for granting access to this land. This
compensation is not regulated; instead it is decided in negotiations between the operator
and each individual municipality. For this reason, the charge varies between municipal
authorities, and there are examples of charges ranging from SEK 1 per metre per year up
to SEK 11 per metre per year. In many municipalities, TeliaSonera has long-term
agreements where no charge or a lower charge than that currently offered to other
stakeholders is imposed. Here, there are also cases where it is claimed that different
operators are offered different terms concerning new agreements.

3.6.4.2. Utilisation of existing ducting

When infrastructure is laid underground, this is generally done by means of ducting in the
form of pipes or the like. This means that re-excavation is not required to extend
infrastructure; instead, for example, new fibre cables can be laid in the existing pipes. This
considerably reduces the cost in comparison with new excavation work. Consequently,
being able to utilise the existing ducting could be a theoretical approach for the party
wishing to roll out fibre. A company with its own extensive ducting, such as TeliaSonera,
can usually simplify the laying of new optical fibre by utilising its existing ducting.
However, others are not entitled to utilise existing, unutilised ducting; instead, this
entirely depends on whether the proprietor wishes to sell such access or not. As regards
owners of ducting for electronic communications lines, these are the above-mentioned
network owners so there are fewer incentives to sell ducting compared with selling dark
fibre. Other 'ducting owners', such as power companies, do not seem to be positively
inclined to mix different lines within the same ducting.

In order to facilitate the rollout of IT infrastructure, the Government has decided to issue
special support for the joint laying of ducting for IT infrastructure when rolling out or
rebuilding other infrastructure. This support amounts to SEK 75m and has been
earmarked for projects where the rollout of IT infrastructure is not deemed to have taken
place on market terms. This initiative could facilitate the establishment of IT
infrastructure in those areas where central government needs to provide assistance.

3.6.4.3. Problems have also been observed in other contexts

Problems related to the rollout of new broadband infrastructure were previously
discussed in the 'Proposed Broadband Strategy for Sweden', published by PTS in
February 2007 (PTSER-2007-7). In this report, PTS noted that access to IT infrastructure
is of such importance to businesses, households and other sectors of society that it is
crucial for all municipal authorities at a local level to be given the opportunity to take
responsibility for ensuring access to infrastructure in similar ways as for roads, electricity
and water. This means that municipalities usually do not have to roll out these networks
themselves. For this reason, PTS proposes that municipalities be given a social planning
responsibility to ensure access to broadband infrastructure and that the Government
should consider legislation to give municipal authorities increased opportunities for inter-
municipality collaboration within the broadband sector. PTS has also proposed that the


                                                                                           38
Government quickly investigate the potential for joint laying; that is, several operators
being able to roll out their respective infrastructure on one and the same rollout occasion
and communications infrastructure being laid during excavation work in conjunction with
the rollout of other infrastructure – not only in conjunction with municipal excavation
work, but also, for example, when energy companies carry out extensive excavation work
to lay power cables and build new roads. PTS has expressed that the Agency is of the
opinion that the potential for joint laying would be utilised to a greater extent if there
were framework agreements and principles for the distribution of costs in place and if
systems were set up through which relevant stakeholders could be informed about
planned excavation work well before implementation. This proposal has not yet led to
measures to any appreciable extent, for which reason these views still apply.

It should be noted in this context that the Government has already commissioned the
county administrative boards to work to ensure that IT infrastructure with high
transmission capacity is laid jointly with power line networks and other infrastructure
through information campaigns and consultation with the relevant authorities and
businesses. PTS considers that increased joint laying would benefit market development.

Furthermore, the practical problems associated with the rollout of IT infrastructure were
discussed in the report, 'Broadband 2013'.16 For this reason, the report emphasised the
fact that access to IT infrastructure is of such significance that it should be dealt with by
the municipalities in the same way as in terms of access to roads, electricity and water,
both in outline development plans and detailed development plans. Consequently, the
report proposes that this issue be investigated, either through the National Board of
Housing, Building and Planning being commissioned to analyse the issue and submit
proposals for how the need to plan IT infrastructure should be met in the municipal
authorities' outline development plans and detailed development plans or through the
Inquiry M 2007:06 Översyn av vissa frågor i plan och bygglagstiftningen [Overview of certain
issues in planning and building legislation] being directed to investigate the issue.17

Thus, the overall problems related to IT infrastructure planning and rollout have been
focussed upon in several different contexts and concrete measures have been proposed.
However, these proposals have not yet led to measures to any appreciable extent.

       3.6.5.    Summary of problem indicators in the dark fibre market

Customers purchasing dark fibre as a wholesale service, with a view to supplying retail
services that are demanding in terms of capacity, cannot currently receive sufficient access
to dark fibre. This excess demand is a consequence of inadequate market prerequisites for
the establishment of and access to new infrastructure, but also because wholesale
customers are not provided with access to the optical fibre that is available in the form of
dark fibre.

As a result of this excess demand at a wholesale level, there is reason to be concerned
about a chronic shortage of supply in the future, which would jeopardise IT development
in Sweden. It is crucial to minimise the existing problems in order to prevent this and to
ensure that the rules of the game in the market ensure access to the necessary
infrastructure.


16Broadband in small communities and rural areas, Dir. N2007:118
17See letter to the Minister for Communications (Appendix 4 to this report) in addition to the Inquiry's
report entitled 'Broadband throughout Sweden' (SOU 2008:40) p. 84f


                                                                                                           39
As these services are taking shape and infrastructure is being established at the time of
writing, PTS is of the opinion that it is crucial to foster positive conditions for this
development and to establish the infrastructure that is required. This also requires a
favourable competitive position between the operators.

3.7.    International perspective
The establishment of optical fibre in Sweden as well as the range of dark fibre are
extensive in relation to other countries, partly owing to the previous regulation. The focus
on further fibre rollout, largely with the support of central government, means that
Sweden is still unique today, particularly in terms of the presence of a large number of
local municipal networks.

Many European countries have drawn attention to the need for fibre, and access to
physical infrastructure has been investigated and/or regulated in several countries, either
as dark fibre or ducting. It should be noted that the Nordic countries differ from the rest
of Europe, as small operators in Sweden, Denmark and Norway lease optical fibre which
they refine themselves. In other Member States, the operators mainly lease more refined
interconnection capacity, although it appears that the interest in dark fibre is growing in
conjunction with the increased need for capacity.

PTS has met with representatives of its Norwegian and Danish sister agencies to discuss
this issue. According to them, Norway and Denmark did not have any exact equivalent to
the problems observed in the Swedish market, which may partly be related to the fact that
dark fibre was regulated in Norway and Denmark for a longer period of time following
transition to the new regulatory system because of national transitional provisions.
However, in their assessment, there was a considerable risk of the same situation that
now prevails in Sweden also emerging in these countries in the future. When analysing
the markets for leased lines, Norway assessed that dark fibre forms part of the market for
trunk segments (previously Market 14).

In Portugal, access to and the dimensioning of ducting are regulated by their Electronic
Communications Act. According to this regulation, the party providing public tele-
communications services must provide other stakeholders in this market with access to
ducting, masts and associated installations. This also means that they must lease out at
least 20 per cent of their ducting to other parties. When dimensioning their networks,
they may set aside a certain proportion for their own future use, but only for one year
forward in time, calculated on the basis of a reasonable assessment of the need.

In France, active efforts are underway to increase the penetration of access fibre, but the
French regulatory authority, Arcep, is of the view that this must be done in a coordinated
and structured way, which includes infrastructure within both properties and land. In
2007, Arcep approached the market with issues concerning the shared use of terminating
segments of optical fibre in order to reduce the amount of work on buildings, in addition
to issues concerning access to and the possible regulation of ducting. The result of this
work was presented in November 2007.18 Here, Arcep explained that two different tools
were needed – firstly, regulation of the ducting to which France Telecom has access in its
capacity as a former monopoly; secondly, the outermost part of the fibre network must
be split.. The latter case refers to regulation that should cover all operators (what Arcep

18For a summary, see http://www.arcep.fr/fileadmin/reprise/communiques/communiques/2007/slides-
confpresse-ftth-281107-eng.pdf


                                                                                                  40
calls 'symmetric regulation') and it is said that 'antenna rights' could be extended to
include fibre. As regards ducting, Arcep viewed that France Telecom's ducting is an
essential form of infrastructure and that the situation differs in relation to the broadband
market as France Telecom's dominant position involves the ownership of pipes, rather
than the fibre-based access network. In October 2007, France Telecom announced that
the company intended to publish a fibre offer at the end of the year. Arcep explained that
the situation would be evaluated after one year, and concluded by pointing out that
municipal authorities can play a major role by providing local information, coordinating
and permitting excavation works and encouraging and permitting fibre rollout in
conjunction with new building and renovation work. On 22 May 2008, Arcep announced
consultation concerning the proposed sharing of the access network fibre. According to
this proposal, the first operator to connect a new building using fibre must grant other
operators access to this network. Views were to be submitted no later than 27 June
2008.19 Arcep has also submitted a draft market analysis to the Conseil de la concurrence that
was intended to enable the imposition of an obligation on France Telecom to grant
access to its ducting on non-discriminatory terms.

In June 2007, the regulatory authority in Germany, BnetzA, imposed an obligation on
Deutsche Telekom to grant other operators in the LLU market access to the company's
ducting between the MDF (main distribution frame) and the connection cabinet. If no
space is available in the ducting, dark fibre shall be offered instead as an alternative.
Deutsche Telecom appealed against this decision and in January 2008 an administrative
court determined that the obligation should apply with certain modifications.20

In England, PTS's sister agency, Ofcom, commenced an inquiry into whether an
obligation should be imposed on BT to provide dark fibre in the access network, and
related documents were distributed for consultation during the spring.21

Outside Europe, it may be mentioned that the Canadian authority CRTC has for a long
time had the power to order other telecommunication operators to grant others access to
their ducting. This is clearly stated by the provisions of the Canadian
Telecommunications Act.22 In an inquiry that reviewed the legislation in 2005, views were
forwarded stating that this Act should be expanded so that it also covered ducting for, for
instance, power lines since they were viewed as being of considerable importance to
potential access to existing ducting.

In the United States, the government authority FCC monitors whether cable and telecom
operators grant access to ducting in a non-discriminatory way. The FCC also has the
power to prescribe prices and terms for access.23




19http://www.arcep.fr/index.php?id=8455&L=1&tx_gspublication_pi1[typo]=8&tx_gspublication_pi1[uidD

ocument]=607&cHash=3e85a53dc7
20 http://www.bundesnetzagentur.de/media/archive/12491.pdf
21 http://www.ofcom.org.uk/consult/condocs/bcmr/
22 Telecommunications Act 45.3
23 Communications Act, Section 224




                                                                                               41
4.      Market definition

4.1.    Characteristics of dark fibre
As described in Section 2.2, dark fibre is the least refined form of fibre service. Dark fibre
means that raw network capacity is purchased; that is, access to physical cables without
electronic equipment. The purchaser then connects its own equipment and can thereby
use the dark fibre to produce virtually any type of electronic communications service,
which the purchaser can then sell on or consume itself. The dark fibre service is not
restricted in terms of use; rather, it is controlled by the terminal equipment connected in
order to 'light up' the fibre. As purchasers control the active equipment, they have
considerable freedom and control in terms of use. This means that a purchaser of the
wholesale dark fibre service has great potential to differentiate the services that it
produces in its turn in terms of price, quality and other characteristics. The party
purchasing dark fibre also has another opportunity to respond directly to the changing
needs of its own customers, for example, in terms of capacity, since the purchaser
controls the terminal equipment and by adjusting it can offer higher transmission
capacity. This is not an option for an operator that purchases a capacity service instead; it
must instead attempt to purchase additional capacity from the supplier. If required, the
operator can change the use by changing the terminal equipment. When the operator
controls terminal equipment itself, it also has more control over operational issues and is
consequently not as dependent on another party's customer support, which would be the
case if it were to purchase a more refined service.

Dark fibre is also robust and relatively resilient to interference, disruptions, interception,
etc. Fibre basically has to be cut during excavation for it to be disrupted. As a result of its
raw status, all other quality controls are the responsibility of the purchasers producing the
services themselves.

Fibre is the medium that has the highest transmission capacity. This means that dark fibre
can even be used as a basis for services demanding the highest capacity. In light of future
development, dark fibre may be viewed as a future-proof input good since it, unlike
certain other technologies, will be able to respond to the rising demand for capacity that
has been forecast.

The fact that dark fibre is a raw service also means that it appears the same regardless of
where it is used in the network. Dark fibre can be used for transmission over both long
and short distances. It can be used as a transmission technology throughout the network,
both in backbone networks and access networks as in backhaul, and may also be used in
combination with other technologies and media; for example, copper and wireless. The
wholesale dark fibre service is in demand at all levels of electronic communications
networks: sometimes as an access line; sometimes as a connection to or between various
access nodes; sometimes as a connection within communities or between addresses
located in different parts of the country. The purpose of the wholesale dark fibre service
is the same regardless of where it is used in the network; that is, it is used to transmit
large volumes of traffic.

Consequently, dark fibre has the following characteristics:

     • high transmission capacity;



                                                                                            42
     •     the fact that it is raw/passive and 'physical';
     •     flexible and broad in terms of producing services;
     •     found throughout Sweden;
     •     future-proof;
     •     high quality; that is, it is robust and emits limited interference in relation to other
           transmission technologies; basically only excavation can disrupt cables;
     •     can be used for the entire distance from point A to point B, or for different parts
           of electronic communications networks, between points A and B;
     •     can be used in combination with other technologies;
     •     can be used as infrastructure in electronic communications networks in both
           backbone networks and access networks.
If a wholesale purchaser requests dark fibre, it is requesting a combination of these
characteristic features and consequently a wholesale purchaser cannot substitute this with
a more refined service or any other transmission technology, as these lack one or more of
the above characteristics. The dark fibre service is in demand in a similar way regardless
of where it is to be used in the electronic communications network, the length of the link
to be used and regardless of what it is to be used for. In addition, the supply of this
service is the same and is provided in the same way, regardless of who the supplier is and
where it is to be delivered in the network.



4.2.      Potential substitutes for the dark fibre service
         4.2.1.   Substitution assessment and market definition

In established practice in competition law, a market is viewed as constituting all of the
services and products that, to a satisfactory extent due to their characteristics, price and
intended use, may be viewed as exchangeable, or in other words, are substitutable.

When discussing substitutability, the most important factor is usually what is known as
'demand substitution'; that is, the extent to which customers are prepared to replace a
certain product or service with other services or products. This means that one is not
only limited to the products and services whose objective characteristics, price and areas
of use immediately appear to be equivalent. Instead, what is used is generally called the
'hypothetical monopoly test' or the 'SSNIP test' (Small but Significant Non-transitory
Increase in Price). In this test, the issue is whether customers are prepared to start using
other products and services instead in the event of a small, but non-transitory increase24
in price. If it may be assumed that an intended price increase would result in a larger loss
of sales than the increase in revenue attributable to the price increase, the market is
expanded to include closely-related substitutes. This procedure is repeated until the
market is comprehensive enough for the price increase to be deemed profitable.




24 5 to 10 per cent according to the Commission's Notice on the definition of a relevant market for the

purposes of Community competition law (97/C 372/03) clause 17, (notice quoted) and the Commission's
Guidelines on market analysis and the assessment of significant market power under the Community
regulatory framework for electronic communications networks and services clause 40.


                                                                                                          43
'Supply substitution' is significant to some extent in addition to this. However, this is
normally regarded as being of secondary importance to demand substitution. Account
should only be taken of supply substitution in a market definition if it provides an
opportunity to adjust production with a low level of financial and commercial risk and
thus has an impact on the market that is so immediate that the impact may be compared
with demand substitution. 'Immediate impact' refers to such supply substitution needing
to have an impact within no more than one year. Consequently, this requires the
suppliers, as a response to small and non-transitory price changes to relative prices, being
able to adjust to manufacturing the products in question and being able to market them
without their resulting in material additional costs or risks. Hypothetical supply
substitution on its own is not sufficient to justify market definition.

An assessment is made as to whether companies would enter the relevant market in
which they are not currently established in the event of a small, non-transitory change in
the relative price. The assessment may include the probability of such entry taking place
within a reasonable period of time. The perception of a reasonable period of time
depends on the characteristics of the individual market. In these contexts, PTS usually
considers this period to be until the next market review; that is, from one to two years.

        4.2.2.   Alternatives to dark fibre


Parties wanting but unable to purchase dark fibre basically have the following options:

    •     rolling out their own optical fibre;
    •     using other passive physical (fixed) infrastructure, for example, copper, power
          line networks;
    •     using other passive physical (wireless) infrastructure, for example, radio links,
          FWA, mobile networks;
    •     using other electronic communications services – active infrastructure such as
          wavelengths and leased lines.

The table below provides an overview of the different types of technology and potential
electronic communications service that may be produced based on these services as well
as the actual performance of these services.


Technology                                    Carrier          Rate
PSTN                                          Copper           64 kbit per second
xDSL                                          Copper           30 Mbit per second
Cable television                              Coaxial          3 Mbit per second
Cable DOCSIS (HDTV)                           Coaxial          100 Mbit per second
GSM Edge                                      Mobile           0.200 Mbit per second
WCDMA (UMTS in basic version)                 Mobile           0.384 Mbit per second (indoor coverage)
CDMA 2000/450 (3G)                            Mobile           0.5 Mbit per second to 2 Mbit per second
                                                               3 or 7 Mbit per second depending on version of
HSPA                                          Mobile           HSPA
                                                               3 Mbit per second (up to 30 Mbit per second close
WiMAX                                         Wireless         to base station)
Wi-Fi                                         Wireless         54 Mbit per second (indoor coverage 30 metres)
Radio link                                    Wireless         155 Mbit per second



                                                                                              44
Dark fibre                                   Optical fibre      155 Mbit per second to 1 Tbit per second
Figure 4: Overview of different types of technology and service in addition to their actual
performance


As regards physical infrastructure as a possible alternative to dark fibre, these are mainly
transmission technologies such as copper networks, radio links, power line networks,
FWA/BWA and individual mobile networks (2G and 3G). Furthermore, services such as
wavelengths and leased lines could serve as alternatives for a purchaser of dark fibre. In
order to be a substitute, these need to serve as an acceptable alternative for a purchaser of
dark fibre on the basis of their characteristics, price and intended application. Supply
substitution is deemed to exist when a provider of an alternative technology starts to
provide dark fibre instead in the event of a small but non-transitory increase in price.

      4.2.3.   Rolling out own optical fibre

As described in Section 3.2, dark fibre offers the user enterprise the opportunity of
installing its own transmission equipment at the fibre's termination points. The user
enterprise can thereby determine the transmission capacity that it wishes to have between
the termination points. By choosing the transmission equipment, the enterprise chooses
its capacity to conveniently change the services to be produced using fibre, such as
transmission capacity, level of security and type of retail services. The alternative of
rolling out one's own optical fibre gives the enterprise the same opportunities to install
transmission equipment as in the case where the enterprise purchases dark fibre from
another stakeholder.

However, as described in Section 3.6.4, rolling out one's own optical fibre is a time-
consuming process which requires, among other things, licences, permits and agreements
with landowners in addition to a much larger and different type of organisation than that
needed only for the installation and maintenance of transmission equipment. This
presupposes investments in competent staff, machinery, local operation and service
personnel, work related to licences and permits, etc. Rolling out one's own optical fibre is
also associated with high costs and long repayment periods, which in their turn place
other demands on financing the operation. Consequently, rolling out one's own optical
fibre entails a different type of financial risk and a need for a different type of
organisation. For this reason, a small but non-transitory increase in the price of dark fibre
is not sufficient justification for an operator to roll out its own optical fibre.
Consequently, rolling out one's own optical fibre is not a substitute for purchasing dark
fibre.

      4.2.4.   Other passive infrastructure

4.2.4.1. Copper

Copper has a much lower limit for the maximum transmission rate than optical fibre. At
the present time, copper technology is mainly viewed as an access network technology
and is mainly used as an end-user access line or for connecting local exchanges. The
capacity that operators can currently offer end users is a maximum of 30 Mbit per second
downstream. Access to the metallic loop is usually offered through 'LLU access'.
TeliaSonera is currently obliged to grant access to the copper network in this way.

Using other passive infrastructure, such as copper, as an alternative does offer the same
potential as fibre in the sense that the company chooses the transmission equipment
itself. However, the considerable restrictions on capacity offered by copper compared to


                                                                                              45
fibre means that copper can only serve as an alternative to fibre in certain cases. Copper
is a substitute for dark fibre in cases involving customer-specific access lines and in cases
where the customer’s need for capacity does not exceed the rates that can be supplied
using xDSL. However, in many cases where a wholesale purchaser requests dark fibre,
the limitations of copper in terms of capacity mean that it does not serve as an alternative.
For this reason, copper as a wholesale service cannot generally be deemed to be a
substitute for the wholesale dark fibre service.

A network owner that has access to copper cannot easily adapt its production and start
offering dark fibre. Existing ducting held for a metallic network does indeed make it
easier for an operator to roll out optical fibre, but it is unlikely that a 5 to 10 per cent
increase in the price of dark fibre would induce a proprietor of a copper network to roll
out optical fibre instead and provide dark fibre.

4.2.4.2. Power line communication

Power Line Communication (PLC) is a technology that uses power cables for data
transmission. This access line technology is capable of theoretical rates of up to 200 Mbit
per second. Despite trials, the development of PLC technology has progressed slowly
and has not spread to any appreciable extent in Sweden. There are virtually no end users
with broadband access via PLC.25 This technology is associated with extensive installation
work and consequently high costs. This technology also has technical limitations as
regards the structure of the power line networks, where a number of customers share the
same line. This limits the potential to establish customer-unique access networks. Supply
substitution is also ruled out here. For this reason, PTS is of the view that PLC does not
serve as a substitute for dark fibre.

       4.2.5.   Wireless technologies

4.2.5.1. Radio links


'Radio links' refer to a fixed point-to-point connection using radio technology. Radio
links offer a company control over transmission, but the potential transmission capacity
in a radio link is lower than the potential transmission capacity offered by fibre.
According to information provided by stakeholders using radio links, the maintenance
costs for radio links are also high in relation to dark fibre. It should also be noted that
radio links are not available to the same extent as optical fibre, which means that the
stakeholder must roll out radio links themselves. This is a costly procedure and is often
impossible considering the requirements imposed on a clear line of sight, etc., that apply
to the use of radio links. It should also be noted that using radio links requires a
compulsory licence in the correct frequency range.

Compared to dark fibre, the limited capacity of radio links alone means that they will not
be perceived as a substitute in the event of a small, non-transitory increase in the price.
As described above, this is in addition to the fact that radio links on the whole rarely
serve as a less expensive solution than fibre. For this reason, radio links cannot be
regarded as a substitute for dark fibre.




25 These and other circumstances are described in Elforsk's report 07:09, 'Samverkansprogram för
elnätskommunikation' [Collaboration programme for power line communication], presented in December 2006.


                                                                                                     46
A stakeholder currently providing radio links must roll out an optical fibre network in
order to be able to provide dark fibre. Thus, there is no supply substitution to speak of
between the services.

4.2.5.2. Other wireless transmission technologies
Wireless transmission in the form of FWA/BWA and mobile telephone networks have
substantially lower transmission capacity compared with dark fibre; for this reason, these
technologies are usually only used in customer-unique end-user access lines. These
considerably lower capacities mean that those requesting dark fibre would not consider
FWA/BWA and mobile telephone networks as substitutes in the event of a small but
non-transitory increase in the price of dark fibre.

Here, supply substitution should be ruled out for the same reasons as described in
Section 4.2.5.1.

      4.2.6.   Active infrastructure - wavelengths and leased lines

One alternative to purchasing dark fibre as a wholesale service could instead be the
purchase of services such as wavelengths or leased lines.

Fibre-based wavelengths are provided by connecting equipment to optical fibre, which
divides the laser light in the fibre cables into many different wavelengths by means of
wavelength multiplication. Thus, the same fibre pair can be used by several parties
(operators, customers). This means that a purchaser receives a pre-determined
wavelength with a pre-determined capacity.

Leased lines provide a symmetric, dedicated network capacity between two network
termination points. Leased lines are consequently a refined service and are produced
using different technologies. Leased lines are independent of the technology and the
media used to provide the service and can therefore be provided over any infrastructure.
Customers purchasing leased lines do not have to take any action to receive a usable
transmission service and do not have to purchase or install terminal equipment or
manage the monitoring of operations themselves.

In both cases, the wholesale purchaser receives a certain pre-determined capacity and for
this reason the services lack the flexibility that characterises dark fibre. In addition,
purchasers of these services do not have the control enjoyed by a purchaser of dark fibre,
as the purchasers do not control the active equipment themselves. This means that the
purchasers' capacity to differentiate between services and to respond to an increased need
for capacity from their customers is not as great as if they had purchased dark fibre
instead. For example, if the purchaser needs to upgrade, increase its capacity or change its
use of the capacity in some other way, new orders and deliveries are required from the
seller. This is more expensive and time-consuming than changing the use of the capacity
oneself.

A purchaser requesting the wholesale dark fibre service will probably not choose to start
purchasing leased lines or wavelengths instead in the event of a small and non-transitory
increase in price. Thus, these do not serve as substitutes.

It is easy for parties that have optical fibre and an organisation that installs and maintains
transmission to adapt and offer wavelengths or leased lines between the same points
where dark fibre is offered. However, this means that the stakeholder must have access to


                                                                                            47
fibre, which is seldom the case for a stakeholder providing leased lines. This also
presupposes that the stakeholder discovers that a price increase of as little as 5 to 10 per
cent makes it profitable to disconnect the equipment in which it has invested and start to
sell raw fibre instead.

        4.2.7.   Summary of the product market for dark fibre
The alternatives available for the wholesale dark fibre service that are described above
include:

    •     rolling out own optical fibre;
    •     using other passive physical (fixed) infrastructure, for example, copper, power
          line networks;
    •     using other passive physical (wireless) infrastructure, for example, radio links,
          FWA, mobile networks;
    •     using other electronic communications services – active infrastructure such as
          wavelengths and leased lines.

The alternative of rolling out one's own optical fibre involves a considerable readjustment
of an operator's business focus and constitutes a risk for the party that has not already
done so and cannot be deemed to be a substitute for purchasing dark fibre. As regards
other alternatives in terms of passive infrastructure, it is apparent that these, as a
consequence of the capacity limitations found in these technologies, cannot be deemed to
be substitutes for the wholesale dark fibre service. This also applies to the wireless
technologies currently being offered. Using leased lines and/or wavelengths entails a
limitation in the potential for flexibility and a rapid increase in capacity or other changes
and for this reason these products are also not deemed to be substitutes for dark fibre.

In light of this, PTS is of the view that there are no substitutes for the wholesale dark
fibre service and that the product market is therefore limited to encompassing dark fibre.

4.3.     Definition of the geographical market for dark fibre in
         Sweden
A geographical market is defined as a geographical area within which companies in the
market participate in the supply and demand of the relevant products or services, where
the competition terms are similar or sufficiently uniform and where the competitive
conditions can be distinguished from adjacent markets where the competition terms are
markedly different. Although some stakeholders are only established in local or regional
areas or are national with different levels of power in various regions, this does not
impede the definition of a market with national coverage. The definition of a relevant
geographical market aims to ascertain whether and to what extent companies within
different geographical areas comprise real alternative sources of supply for customers and
consequently focuses on identifying possible barriers that may make it more difficult for
customers to engage these alternative sources of supply. Consequently, it is of importance
whether and to what extent customers can engage companies outside the area in question;
that is, the substitutability in terms of demand.

This concerns a wholesale market where the purchasers are operators requesting dark
fibre in order to refine it for various electronic communications services, which they will
either offer to other operators for further refinement or, as in the most common




                                                                                              48
situation, to various end users. These end users can either be businesses, other
organisations or households.

PTS perceives three possible alternatives when defining the dark fibre market:

    1. Each connection is a relevant market;
    2. Local markets;
    3. National market.
For a user enterprise, the demand for the dark fibre service has been well defined
geographically. A dark fibre connection in one area cannot be replaced by a dark fibre
connection in another area.

For this reason, the least feasible geographical market would define each fibre connection
between two points as a separate geographical market. If purchasers are only requesting
the 'dark fibre' service as a link between two points, a hypothetical monopoly could
increase the price significantly and on a non-transitory basis, as a dark fibre connection in
one area cannot be replaced by a dark fibre connection in another area.

In order to be able to analyse the need for special obligations, PTS would need to look at
each potential connection that could be in demand in all conceivable and potential
demand situations. This type of market definition is not possible.

The demand does not actually have these characteristics. The vast majority of customers
are requesting a broader service. An operator that supplies electronic communications
services has a need to link up its network. Usually, an operator's customers request a
connection to other geographical areas in Sweden or the rest of the world. For this
reason, an individual connection is not sufficient for an operator that wants to provide
end users with Internet access. This type of operator would need some type of
connection from the end user to the operator's network, which would then usually
comprise purchased/leased lines as well. Not all of these connections will consist of dark
fibre, but fibre can be required at several levels. An operator supplying advanced business
services usually needs to be able to connect business locations to one another using fibre
along the entire section. The service requested by the end users also has similar
characteristics throughout the country, which in turn means that the operators' demand
also appears similar throughout the country.

This means that most operators need to be able to purchase dark fibre as a wholesale
service in a uniform manner over large geographical areas. This applies throughout the
country to operators that are active nationally, which should account for the largest
volume of demand. Thus, the fact that customers usually request fibre in a uniform way
throughout the country strongly suggests that the market should be considered to be
national.

There are differences in the supply and demand situations depending on where in the
network dark fibre is offered and in demand. Access to dark fibre also varies throughout
the country. As described earlier, the distribution of municipal networks is local/regional
and their rollout varies between different geographical areas. However, access to dark
fibre is spread throughout the country and fibre is available in both urban and rural areas
in addition to the north and south, between communities and within communities. The
service offered by suppliers is similar throughout Sweden. There are a number of


                                                                                          49
operators, such as TeliaSonera, that offer fibre throughout the country. As mentioned in
Section 3.1.2, a web-based system for managing queries to several affiliated municipal
networks was launched in December 2007 under the name of CESAR. This is used for
municipal networks and the aim is that they are to offer more uniform terms and a
comparable supply of dark fibre so that their customers, in this case operators, will find it
easier to purchase wholesale products from municipal networks. The hope is that through
CESAR municipal networks will be regarded to a greater extent as national stakeholders
vis-à-vis their customers. This confirms the picture that dark fibre is not requested
regionally/locally, but that there is a need on the part of purchasers to gain access to fibre
at a national level. This is also a sign that the market may also be on its way to showing
greater uniformity in the range. Consequently, the fact that fibre is being rolled out
continuously and that the size of the infrastructure can vary from day to day with a clear
tendency to become increasingly widespread nationally suggests a national market and
refutes the potential to define local markets.

The fact that national undertakings such as TeliaSonera offer uniform terms throughout
the country and the fact that municipal networks are tending towards joint national
offerings in combination with strong demand throughout the country suggest that the
market is national.

       4.3.1.   Conclusions

Although the demand for and supply of this service appear similar from a national
perspective, the state of competition and access vary throughout Sweden, which could
suggest that the market is not national. However, most operators request the wholesale
dark fibre service nationally, as they want to be able to offer services of the same quality
to their respective end users throughout the country. There are also a number of
operators that offer fibre throughout the country. The collaboration of municipal
networks through CESAR also strongly suggests that fibre is being requested nationally as
the establishment of CESAR is obviously a way of responding to the requests of
operators. Furthermore, the establishment of CESAR means that the supply seems to
becoming more uniform throughout the country. Altogether, at the present time, the
structure, demand and supply consequently indicate that the market is national.

4.4.    Summary of the market
Thus the market in question refers to the wholesale dark fibre market. There are no
substitutes for dark fibre, for which reason the market does not include any other services
or products. The market is national and refers to dark fibre within Sweden.




                                                                                           50
5.      Identification of a relevant market that
        justifies ex ante regulation

The wholesale dark fibre market is not included in the markets specified as relevant in the
Commission's Recommendation. The preliminaries to LEK state that the Commission's
Recommendation is the starting point for a market analysis. However, the regulatory
authority has the opportunity to deviate from the Commission's Recommendation if
there is justification to do so on the part of Sweden. If PTS, following an overall
assessment, finds that the market has characteristic features that justify the imposition of
obligations under LEK, a further analysis will be carried out aimed at examining whether
competition is effective; that is, whether there are stakeholders that individually or jointly
have significant power in the relevant markets.

The Recommendation specifies that three cumulative criteria must be considered before a
market can be identified. The first criterion relates to whether a market is characterised by
high and non-transitory entry barriers. The second criterion focuses on market dynamics.
The third criterion relates to whether the competition law is in itself adequate considering
the characteristic features within the electronic communications sector. A market that
does not satisfy all of the criteria may not be subject to intervention in the form of
regulation obligations. In this report, PTS has chosen to review the three criteria in order
to assess whether dark fibre is such a market.

5.1.    The first criterion: Barriers to entry
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
communications services, such as power companies. These stakeholders may attempt to

                                                                                           51
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


                                                                                               52
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.

5.2.     The second criterion: Market dynamics
When assessing the second criterion, PTS must adopt a position on whether the market
has characteristics that mean it is eventually tending towards effective competition.
Despite the presence of high entry barriers, structural factors or market characteristics
may entail market shares fluctuating over time or the price situation becoming unstable.
The appropriate time perspective when examining this criterion is deemed to correspond
to the time interval between the regulatory authority's reviews, so that it only takes
account of the development that has taken place during this period. This has been
perceived as being approximately two to three years.

Dark fibre was previously regulated under the Telecommunications Act and special
licence conditions were issued for stakeholders providing 'network capacity', which
included dark fibre. LEK abolished the special regulation for raw network capacity with
effect from its entry into force in July 2003, as such connections were not expressly
viewed as being part of any of the relevant markets. In the assessment of PTS, the lack of
regulation for physical infrastructure did not previously cause considerable problems in
the market, but this situation has changed. The combination of growing demand and a
lack of opportunities to meet this demand, in addition to a changed strategy on the part
of TeliaSonera, have meant that the potential for other operators to gain access to dark
fibre has been considerably impeded.

26Cf. judgment of 18 July 2007 from the County Administrative Court in the County of Örebro, case no.
1800-07 E. IP-Only appealed against this judgment to the Administrative Court of Appeal.


                                                                                                        53
However, there are factors that could help move the market in a positive direction
without any intervention in the form of ex ante regulation.

Over the past few years, local fibre networks in the form of municipal networks have
continued to expand. This trend is expected to continue for the foreseeable future, even
if the expansion is likely to take place at a slower rate than would have been the case
during the period when grants were widely available. Another factor that may increase
access to dark fibre is that municipal networks are becoming increasingly willing to grant
access further down the chain of refinement and are consequently providing dark fibre as
a wholesale service to a greater extent than has been the case to date. A prerequisite for a
positive trend is that municipal networks do not compete with the operators at a retail
level. It should be noted here that SALAR, through the principles for managing
municipal broadband operations that were mentioned previously, expressly states that this
should be one of the guiding principles of the municipal broadband operation.

If this is to make the situation easier for operators that are currently unable to purchase
dark fibre as a wholesale service to the extent that they wish, the service needs to be
provided with sufficient quality and security and there must be an opportunity to
purchase connections over longer stretches. In its turn, municipal networks need to
become increasingly uniform in their service offerings, pricing, levels of service and
conditions.

If municipal networks are to become acceptable alternatives for operators, this
presupposes that municipal network coverage becomes more extensive, that they sell dark
fibre to the fullest extent and that they have a high level of competence and service. PTS
is aware that there are currently inadequacies in these respects, but there are also
assumptions in place for such a development in the future. As previously mentioned, a
step in this direction has been taken by the Swedish Urban Network Association's
enquiry tool 'CESAR' to which several different municipal networks are connected.
Another step is that the municipal networks, as mentioned, are more willing than they
were previously to grant access further down the chain of refinement and consequently
provide dark fibre as a wholesale service to a greater extent than has otherwise been the
case up until now.

Another factor of importance is that new stakeholders would find it easier to roll out
fibre either by more stakeholders receiving planning permission in the form of utility
easements/land contracts or by being able to utilise existing ducting. PTS has emphasised
on several occasions that rolling out fibre infrastructure involves a considerable amount
of investment. This means that there are considerable economic impediments to
establishment and that the economic prerequisites vary from place to place. As stated,
this applies both between different geographical areas and between different parts of the
network; however, this does not rule out replication in all parts of the network or at all
locations in the country. PTS has observed that market stakeholders are indeed making
parallel investments at some locations and in some parts of the network. Thus, the
economic impediments to establishment are not insurmountable everywhere. As
described above, there are nevertheless other regulatory impediments to establishment
currently in place that impede rollout and thereby development that could otherwise take
place if these were not present. Consequently, it is essential to remove these as soon as
possible so as not to prevent or impede the positive development that the market itself
would be capable of achieving.



                                                                                              54
As previously mentioned, the Government has earmarked SEK 75m to support the
simultaneous rollout of IT infrastructure when rolling out or rebuilding other
infrastructure. During this study, proposals were also received from operators stating that
all operators should be given an opportunity to lay fibre in conjunction with other
excavation work; for example, when building new premises, laying tarmac, laying water
pipes, etc. The cost of this type of joint laying could be shared, less excavation work
would be needed, the demand for fibre could be met and competition could become
established. For example, in some municipalities, there are requirements for laying down
empty pipes in conjunction with excavation work; these are a precondition for getting an
excavation permit on municipal land in that the stakeholder must at the same time roll
out ducting for future needs. Good competition fosters the best opportunities for end
users; in other words, the municipal residents gain access to the greatest possible benefits
in terms of the range of electronic communications and their price and quality. In light of
this, it should thus be in the interest of municipal authorities to help all operators to roll
out optical fibre as much as possible. The importance of joint laying and the planning of
IT infrastructure at municipal level was previously emphasised by PTS.27 These needs
have not changed. As mentioned previously, the need for planning was also pointed out
in the report entitled 'Broadband 2013'28 (see Appendix 4). Such changes could possibly
make the rollout of some parallel infrastructure easier and consequently limit the need to
generally impose special obligations for dark fibre.

Besides mere changes to regulations, this should also presuppose changes in the level of
interest and attitude of many municipal authorities. This type of development requires
changes that lie outside the scope of what PTS can influence by means of the existing
legislation, and consequently depends on measures carried out by central government and
municipal authorities in the near future. However, PTS has assessed that the prerequisites
are in place for this type of development within the time interval in question.

On the whole, PTS has determined that the wholesale dark fibre market is currently
facing a development that could entail positive consequences for competition. There is
reason to await these results before definitely establishing that the market requires ex ante
regulation in order to move towards effective competition. As stated, the time interval in
question is approximately two to three years. However, it should be possible to ascertain
within a shorter period of time than this whether the positive expectations for market
development as expressed here were justified, or whether the entire or parts of the
market analysed here need assistance in the form of ex ante regulation in order to move in
a positive direction. A move towards effective competition within the time-frame in
question should not be expected if there are no apparent changes to the market
conditions within the next twelve months.. For this reason, PTS will carefully monitor
market developments over the next twelve months with great interest.

5.3.        The third criterion: The relative effectiveness of competition
            law and additional ex ante regulation
Considering the fact that PTS has determined that the market is itself capable of moving
towards effective competition, there is no reason to discuss in more detail the possibility
that competition law could be effective.




27   Proposed Broadband Strategy for Sweden, PTS-ER-2007:7
28   Broadband in small communities and rural areas, Dir. N2007:118


                                                                                            55
5.4.    Conclusion
The wholesale dark fibre market is encumbered by general competition problems and the
extent of these problems is already considerable, partly owing to the change that
TeliaSonera made to its wholesale range. There is no alternative technology comparable
to dark fibre and, from a national perspective, there are currently no alternative
stakeholders to TeliaSonera, with some exceptions. There is a risk that these competition
problems will grow over time, and mainly prior to the transition to NGN. However, PTS
considers that the market can still move towards effective competition even without
imposing ex ante regulation. For this reason, PTS does not consider that the wholesale
dark fibre market can currently be identified as being relevant for ex ante regulation. This
only means that there is currently no reason to define a special market for dark fibre and
this does not anticipate the assessment of other markets, whether this refers to the extent
of or need for regulation. PTS will closely monitor developments in the dark fibre market
with great interest, and there may be reason to draw the conclusion that the market is
unable to move towards effective competition on its own if the competition problems do
not appear to reduce within the next twelve months. There are plans to communicate the
results of this analysis to the market during the second quarter of 2009; that is, one year
from the completion of this report. The result may be that PTS finds that positive
development has taken place. Regulation may also be necessary. A third possibility is that
PTS finds that the development gives rise to an additional defined market, where the
need for regulation must be reinvestigated. A relevant circumstance in connection with
the renewed analysis is obviously the outcome of the market analyses contained in the
Commission's Recommendation currently being conducted by PTS, which may result in
regulation that is significant for dark fibre.




                                                                                          56
6.      Analysis of the state of competition in the
        dark fibre market

The wholesale dark fibre market has not been defined as relevant, because PTS has
assessed that the market can move towards effective competition under certain
conditions. It is therefore not considered necessary for any special obligations under LEK
to be imposed on the market. However, PTS has chosen to analyse the power
relationships in this wholesale market in order to determine whether there are any
structural competition problems in the form of an operator with significant market
power, as indicated by the current market situation.

In accordance with established practice in competition law, it is necessary to assess the
significance of market shares as an indicator for each individual market in order to
establish dominance. Besides market shares, there are also indicators that suggest or
refute that the undertaking in question has significant market power. These indicators
may include impediments to establishment, the overall size of the undertaking, vertical
integration, economies of scale, economies of scope, countervailing buying power,
technical advantages and innovation, control over infrastructure, barriers to expansion
and potential competition.

6.1.    Distribution of market shares
Market shares can be measured in different ways. The Commission gives the regulatory
authority the freedom to select the measure that is most appropriate in relation to
national circumstances. The market shares for dark fibre can be calculated in many
different ways. Feasible measures include: total number of kilometres of fibre; the total
number of kilometres of fibre that are subject to a wholesale market; the total revenue
from the wholesale dark fibre service; the number of wholesale customers and end users
that are connected; etc. The dark fibre market was not previously defined as a market that
was relevant on its own. This means that there is no historical data that directly relates to
the market definition now being made. PTS has requested that data relating to dark fibre
be compiled during the autumn of 2007 and intends to follow up dark fibre issues on a
regular basis.

There are a number of problems associated with measuring the market shares in the
wholesale dark fibre market as a proportion of turnover. These result from a stakeholder
possibly having considerable access to optical fibre but not selling it on as dark fibre
despite demand and available capacity. This means that the total market value on the
basis of turnover in Swedish kronor calculated on external provision is too small and that
the market shares are misleading. One or more stakeholders can thus have greater market
power than indicated by their market shares in the wholesale market, as they themselves
have been able to choose not to operate in the wholesale market or to only operate to a
limited extent. It is consequently important not only to use the market shares as a starting
point for the existing wholesale market, but also to make an assessment based on access
by the respective stakeholder to the optical fibre infrastructure. Please note that all of the
information provided below includes the assets and turnover for both internal and
external use.

According to the information compiled by PTS in conjunction with the 'Broadband in
Sweden' report, TeliaSonera accounted for 53 per cent of all of the fibre used in Sweden



                                                                                            57
at the end of 2006 and had the most extensive infrastructure. TeliaSonera was the only
stakeholder with fibre-based infrastructure in backbone networks, interurban networks
and local area networks.29

According to a PTS survey, fibre-based infrastructure in Sweden amounted to just over
130 000 kilometres, of which TeliaSonera was the largest stakeholder with a market share
of just under 50 per cent (based on the number of kilometres of fibre). No other
stakeholder has a market share of more than 10 per cent, and most of the other large
fibre owners account for 2-3 per cent of total fibre coverage in Sweden.

Metropolitan areas have a relatively large customer base; at the same time, municipal
networks are perceived to be well established in these areas. This should enable keener
competition between infrastructure owners. For this reason, PTS conducted surveys in
these areas: Stockholm/Mälar Valley region, the Gothenburg region and the Malmö
region (see Appendix 2 for more detailed information about the municipalities in the
respective regions). PTS observed that, although the competition was better in these
regions, TeliaSonera is also by far the largest single stakeholder in these regions and owns
around half of the coverage in all the areas. No operator in any area owns more than
approximately 20 per cent of the coverage. The coverage of most of the other operators
is also around a few percentage points.

The number of interconnection points/nodes sometimes suggests the extent of a
stakeholder's infrastructure and thereby also the strength that the stakeholder has in the
market in which it is present. PTS has observed that this is not particularly useful for
measuring a stakeholder's strength, as the different stakeholders' choice of rollout
technology and the primary location of the infrastructure in the network structure
(backbone network, interurban networks and local area networks) also have a major
impact on the number of interconnection points/nodes. The interconnection
points/nodes measured by PTS include all of the interconnection points/nodes with the
exception of the interconnection points at the end user. This corresponds to
interconnection points where there is a theoretical opportunity for other operators to
obtain connections. In practice, there are more potential interconnection points; several
stakeholders are currently setting up networks so that other operators can also connect to
interconnection points at properties and apartment blocks. The advantage of a greater
distribution of potential interconnection points further out in the fibre infrastructure is
that this increases potential competition, assuming that network owners grant access to
the infrastructure that is available and allow other operators to become connected.

Other operators lease dark fibre from TeliaSonera to a considerable extent. As mentioned
previously, TeliaSonera's changes to its dark fibre service mean that other operators are
attempting to lower their interest in the company and to reduce their dependence on
TeliaSonera. However, they have limited potential to engage a different company.
According to information compiled by PTS as supporting documentation for this study,
the dark fibre market amounted to SEK 720m during the first six months of 2007. This
total also includes intra-group revenues. The single largest stakeholder is Stokab, which
has a market share of 31 per cent, with TeliaSonera having the second largest market
share at 26 per cent. Other stakeholders are much smaller, with the majority of the other
relatively large fibre owners having shares of between three and four per cent. It is worth
noting that TeliaSonera's sales volume rose by 10 per cent between 2005 and 2006, but
appeared to reduce by at least 15 per cent between 2006 and 2007 (by translating the
29   Broadband in Sweden 2007, PTS-ER-2007:17


                                                                                          58
value for the six months for 2007 into the full year 2007). This has also meant that their
share of the total reduced from 31 per cent in 2005 to 26 per cent during the first six
months of 2007. Ninety-seven per cent of the revenue received by TeliaSonera from its
dark fibre service is from intra-group sales.

In order to measure the strength of a player that is potentially dominant, it is also useful
to take a look at its share of the upstream market. Among other things, PTS has assessed
the revenues and market shares of the stakeholders' wavelengths and capacity services
(leased lines). TeliaSonera's share of the market's turnover from wavelengths amounts to
approximately one-third of total turnover, 99 per cent of which is from intra-group sales.
In this case, it should be noted that the market for wavelengths is relatively small with a
turnover of only one-tenth of that from the dark fibre market, and only a few
stakeholders offer wavelengths as a wholesale service. TeliaSonera's share of market
turnover from capacity services amounts to approximately one-half, approximately 87 per
cent of which is from intra-group sales. This market is almost twice the size of the dark
fibre market.

On the whole, PTS has determined that TeliaSonera's ownership of fibre suggests that
the company has a dominant position in the dark fibre market.

6.2.    The size of the undertaking
The size of TeliaSonera in the Swedish electronic communications market gives it
advantages in relation to other stakeholders. TeliaSonera has the widest range of services
of all telecom operators in Sweden and, for this reason, can distribute the fixed
infrastructure costs attributed to dark fibre; mainly the fixed costs incurred for excavation
work, ducting and local nodes, between a large number of services. Not only does
TeliaSonera offer a wide range; the company's services are provided in larger volumes
than compared with other operators.

It has also become apparent that the size of TeliaSonera has given the company
advantages in connection with the granting of licences and/or permits for the
establishment of new infrastructure, since landowners and municipal authorities perceive
it as more pressing to give TeliaSonera the opportunity to expand its structure rather than
to allow new operators to become established. The size of TeliaSonera also gives it a
competitive advantage, since many customers perceive that this entails a higher level of
security compared with smaller suppliers.

Altogether, this gives TeliaSonera a unique position in the Swedish dark fibre market
today, which indicates significant market power.

6.3.    Control of infrastructure not easily duplicated
As pointed out previously, TeliaSonera is the sole stakeholder with access to a fibre
network with national coverage. This means that TeliaSonera is one of the few operators
that can provide fibre links throughout the country and in most communities. There are
also other stakeholders that own and offer only fibre links, primarily through
geographically delimited municipal networks. As described above, these local stakeholders
differ from each other in terms of quality, level of service, business models and supply. In
contrast to TeliaSonera's fibre network, these alternative networks are not continuous.
From the perspective of an operator with a national business, these municipal and other
networks may currently be viewed largely as local alternatives to TeliaSonera. However,
the focus of the municipal networks on a shared structure in their range in the wholesale


                                                                                          59
market indicates that they may together achieve increasingly national coverage, while
smaller stakeholders are showing an increasing interest in replicating infrastructure.

Consequently, TeliaSonera's fibre infrastructure is distributed over a larger geographical
area than other infrastructure owners. Operators such as the Swedish National Rail
Administration and Svenska Kraftnät do own fibre that covers the entire country but, on
the other hand, their fibre infrastructure is not rolled out to such a great extent within
communities. TeliaSonera is the only Swedish fibre operator that owns a national
backbone network, interurban networks and local area networks in all parts of the
country. In many communities, TeliaSonera's fibre network is also more finely meshed
than networks belonging to the local network owner or to the other operators present in
the community.

TeliaSonera controls a large proportion of the ducting that is available for electronic
communications in Sweden, which had already been largely established for the copper
network. This means that the traditional telephony services gave TeliaSonera advantages
both when the company developed and now has plans to further develop the fibre
networks. The cost attributed to the optical fibre cable is relatively low compared with the
overall cost of establishment, which means that optical fibre can be rolled out at a small
additional expense because ducting has already become established. This gives
TeliaSonera considerable advantages over an alternative operator that must copy all the
necessary infrastructure rollout that TeliaSonera carried out during the period when it had
a monopoly. This means that TeliaSonera's levels of investment are lower than for a new
stakeholder.

Stakeholders with a fibre-based infrastructure that is already extensive also require
substantially less rollout in order to connect new customers because fibre has already
been established in the vicinity. The fact that TeliaSonera has access to a finely meshed
fibre network in most communities means that the company is able to roll out fibre to
cover new areas with less investment than other operators.

TeliaSonera's ownership of fibre is also largely a consequence of the company having
induced operators to lease from TeliaSonera. Since TeliaSonera has had other operators
pay for the laying of new fibre, which the company subsequently leased out in the form
of dark fibre, TeliaSonera has also had these operators finance the company's network
rollout, to the disadvantage of alternative stakeholders or other solutions.

Also, in its capacity as a former monopoly, TeliaSonera has old property use agreements
on advantageous terms in addition to having many utility easements in place. The latter
are permanent, which gives TeliaSonera a considerable advantage in relation to other
operators.

6.4.    Technological advantages or technological superiority
TeliaSonera is technically skilled and at the cutting edge in terms of the development and
application of new technology. On the other hand, providing dark fibre does not require
any particular technology that is not familiar to all operators. In the assessment of PTS,
TeliaSonera's expertise in terms of producing dark fibre cannot for this reason be
assessed as so superior or generating such great advantages that it should indicate
significant market power.




                                                                                            60
6.5.    Lack of or low level of countervailing market power
Wholesale customers have no, or a very low level of, purchasing power in the wholesale
dark fibre market. As described previously, virtually all network owners act independently
of their customers and control the range offered. Customers rarely have any alternatives
to these network owners and, even if TeliaSonera is usually the only company that is
available to choose from, this is how all network owners act. Consequently, it could be
said that there is a lack of countervailing purchasing power.

6.6.    Easy access to capital markets and financial resources
In its capacity as a former monopoly, and considering the fact that the largest
shareholders are the Swedish and Finnish central governments, TeliaSonera's
creditworthiness and thereby potential to obtain the necessary capital should be very
satisfactory in comparison to smaller stakeholders competing with TeliaSonera in the
Swedish market. TeliaSonera's financial resources are also very sound. Above all, the
company offers a very wide range of services and has a particularly broad customer base,
which ensures an even flow of revenues and good liquidity. However, the market also
contains several other operators, such as Telenor, TDC Song and Tele2, which,
particularly with regard to their international operations, should have equivalent financial
resources. Moreover, the municipal networks are financed by government grants and
often by financial contributions as well. PTS considers that TeliaSonera's advantages
suggested by this indicator are not particularly strong, while at the same time this criterion
has little relevance to the assessment of significant market power.

6.7.    Product and service diversification
The dark fibre service comprises a straightforward technology and service in itself, and it
is difficult to obtain advantages indicating significant market power through product and
service diversification. It should be possible to diversify through geographical accessibility
and by offering dark fibre where the competition and the customer base are assessed as
insignificant and by refraining from offering dark fibre where the competition and the
customer base are assessed as considerable.

6.8.    Economies of scale
The provision of dark fibre is characterised by very substantial economies of scale. These
are mainly based on the high fixed costs that arise due to excavation work, ploughing,
reinstating land and the ducting of fibre cables. Once the fibre cable is in place, the
marginal cost of providing an additional connection via the same ducting is relatively
small, assuming that space is available in the ducting.

TeliaSonera has access to considerable ducting and fibre infrastructure and the company's
economies of scale, compared with competing stakeholders, are of such a size that they
indicate significant market power.

6.9.    Advantages as a consequence of economies of scope
Economies of scope arise in the dark fibre market when the cost of providing dark fibre
can be shared with other services. The extent of the economies of scope depends both on
the number of other services that can be provided and the volumes of these services in
relation to the total cost of providing all services.




                                                                                           61
Dark fibre is a physical product/service; when a stakeholder has sold this service, there is
no scope left to provide additional services on the same physical fibre cable. For this
reason, this indicator is not relevant to this market.

6.10. Vertical integration
A wholesale supplier that also offers electronic communications services to the customers
of wholesale customers, and thus competes at that level of the value chain, has incentives
to utilise its market power by controlling the infrastructure needed by its competitors
higher up the value chain in order to have any offerings at all.

As described on several occasions in this report, TeliaSonera previously offered dark fibre
as a wholesale service to other stakeholders which, in their turn, used it to produce
electronic communications services for end users. TeliaSonera uses its own fibre assets in
the same way. In 2006, TeliaSonera changed its approach to the provision of dark fibre
and, as of February 2007, TeliaSonera does not meet the demand of its wholesale
customers to the same extent.

This means that the lion's share of the wholesale market for dark fibre that previously
existed is now reserved for TeliaSonera itself, which gives the company major advantages
in terms of the production of retail services. The fact that TeliaSonera can act in this
manner and reduce its revenues from the former wholesale business can solely be
explained by the gains from using dark fibre in its own production exceeding its revenues
from the wholesale business. The reason for this gain is that dark fibre, both now and in
the future, will become increasingly important as an input good and a large proportion of
the services already being planned for launches depend on dark fibre and the fact that
dark fibre is used in large parts of the electronic communications network and in both
fixed and radio-based networks. A vertically integrated operator such as TeliaSonera thus
achieves two positive effects in this way. Firstly, other stakeholders are prevented from
offering future services that demand high capacity to the same extent, which impedes
competition, and secondly they can develop and launch these services themselves under
their own control and within a relatively short period of time. Thus, PTS assesses that
TeliaSonera is using its position in the dark fibre market to gain advantages at a retail
level.

The vertical integration of TeliaSonera is a given fact and there is nothing to suggest that
this situation will change. The proposed statutory amendment that would make it
possible to impose functional separation on TeliaSonera only applies to copper-based
LLU and bitstream, and consequently does not have any bearing in this context. The
advantages that TeliaSonera enjoys from vertical integration therefore constitute an
important factor that could contribute to significant market influence.

6.11. Well-developed distribution and sales networks
As a single operator, TeliaSonera also has an operative organisation, administration and
procedures at national level. New stakeholders would find these areas very costly and
time-consuming to establish. The ownership of this type of organisation is a clear
advantage for TeliaSonera and is thus an additional factor that helps to strengthen
TeliaSonera's position in the market.




                                                                                           62
6.12. Absence of potential competition
Potential competition refers to the potential for new competitors to enter the market
during the period covered by this market assessment. As regards dark fibre, this refers to
the opportunity for new stakeholders to become established as providers of the wholesale
dark fibre service based on their own infrastructure. The most likely scenario would be
for a stakeholder that currently has access to ducting to utilise it to set up a fibre link with
the aim of providing dark fibre as a wholesale service. PTS has not received any
indications that stakeholders with access to ducting intend to take this kind of action
during this analysis period.

It is highly unlikely that any other stakeholder could do this and set up fibre-based
infrastructure within a short period of time to the extent that it would become a full-scale
competitor to TeliaSonera. This would require a very extensive rollout of fibre-based
infrastructure, which requires a great deal of capital. The regulation governing the setting
up of fixed infrastructure and the rolling out of dark fibre further impedes such
establishment. These factors are considerable barriers to market entry.

As pointed out by PTS, there is some parallel infrastructure in the form of optical fibre
belonging to the municipal networks that could in the future be of more significance to
the competition conditions in the wholesale dark fibre market, partly through continued
rollout and partly through the municipal networks selling dark fibre to a greater extent
than they do currently. The establishment of CESAR also means that they will more
often serve as an equivalent alternative for those operators requesting fibre at national
level. Furthermore, the non-financial impediments to establishment could be reduced
through measures taken by municipal authorities and others. This would make it easier
for new stakeholders to enter the market and would also help to make it easier for
TeliaSonera's existing competitors to expand their infrastructure. Consequently, there are
some preconditions in place for potential competition, even if its importance is difficult
to assess at the present time. This has been expanded on in Section 5.

6.13. Barriers to expansion
The barriers to expansion that exist in this market largely correspond to the impediments
to establishment already discussed in conjunction with the assessment of the first
criterion in Section 5.1. In the areas where network owners have made investments and
already have access to local and regional fibre infrastructure, they have an opportunity to
increase their market shares by limiting their investment to the marginal cost for the
further establishment of fibre infrastructure. On the other hand, if network owners
without these preconditions want to carry out a more comprehensive expansion of their
infrastructure, this must nevertheless be based on a more comprehensive rollout of their
own physical infrastructure so that it covers a larger proportion of the country, more
communities and more areas within each community. This is both very time-consuming
and requires a great deal of capital which, in turn, considerably impedes expansion. This
barrier reduces in pace with growing demand, because a large customer base lowers the
level of financial risk. It should be noted that this gives rise to new barriers of a legal and
regulatory nature through the need to be granted the licences, permits and agreements
required by such rollout. However, PTS has observed that TeliaSonera, which already has
a comprehensive infrastructure, often finds it easier to be granted these licences, permits
and agreements in comparison to a stakeholder with limited infrastructure. If existing
ducting is available in the relevant areas of expansion, this also facilitates the potential for
expansion. Altogether, this means that a stakeholder with a comprehensive infrastructure
has a considerably lower level of barriers to expansion than a stakeholder with limited


                                                                                              63
access to infrastructure. This factor is generally related to the prerequisites for rolling out
infrastructure in Sweden. TeliaSonera's advantages in terms of its opportunities to expand
existing infrastructure in relation to other stakeholders are so considerable that they
strengthen TeliaSonera's market power.

6.14. Summary of assessment of significant power in the dark fibre
      market
The assessment carried out above shows that TeliaSonera has a unique position in the
market in question. TeliaSonera's market shares account for 53 per cent of all established
fibre infrastructure and 47 per cent of all fibre coverage. This suggests that TeliaSonera
may have significant market power. However, TeliaSonera's market shares alone are not
sufficient to definitely conclude that the company has a dominant position in the market.

However, there are several other factors that very clearly indicate that TeliaSonera has
significant market power. The more significant of these include the fact that TeliaSonera
maintains control over an infrastructure that is difficult to copy, since the company has
the network that is the most widespread geographically and which is often considerably
more finely meshed than those of competitors. Through its size and position as a former
monopoly, TeliaSonera also enjoys additional advantages in the form of ducting for other
purposes as well as through existing agreements and utility easements and has greater
potential to expand its network. TeliaSonera also has a well-established operating
organisation, administration and procedures. Another circumstance that reinforces
TeliaSonera's market power is the fact that TeliaSonera is an operator with a high degree
of vertical integration.

These indicators are reinforced by TeliaSonera's own conduct in conjunction with its
changed product range, which clearly indicates that TeliaSonera can currently act
independently of its competitors, purchasers and ultimately consumers.

Under the prevailing circumstances, the market is largely inaccessible to competing
operators. By changing its range of dark fibre, TeliaSonera has demonstrated that it will
not provide the wholesale dark fibre service desired by its wholesale customers without
special obligations being imposed. On the other hand, TeliaSonera will meet its own need
for dark fibre.

In areas where competing operators wish to offer fibre services and where only
TeliaSonera's fibre network is available as infrastructure, it is difficult to believe that they
will be able to realise these services on competitive terms without ex ante regulation being
in place. As this will not take place, it is difficult to believe at the next phase that
TeliaSonera's economies of scale will benefit end users in the form of a broader range of
services and, above all, lower prices. There are many communities and areas where
TeliaSonera is the only operator providing fibre-based connections to end users.

On the whole, TeliaSonera consequently may be considered to have such a market
position that the company can act independently of competitors, purchasers and
ultimately consumers. In the event of the market being deemed relevant for ex ante
regulation, TeliaSonera would in all probability be deemed to be an operator with
significant power in this market, which would result in the next step being TeliaSonera
having special obligations imposed on it under LEK.




                                                                                              64
Considering, among other things, the impediments to establishment and the lack of
competition, PTS also assesses that there is a risk that TeliaSonera's position and
competitive situation in the relevant market will prevail in the long term. As explained by
PTS above, and with regard to many different circumstances, it is difficult to express a
definite opinion on the development of the market and it cannot be ruled out that it will
move towards effective competition; that is, a situation where none of the stakeholders
have significant power, even without intervention in the form of ex ante regulation.

Consequently, the market is not relevant for ex ante regulation and for this reason
TeliaSonera should not have any special obligations imposed on it at the present time,
despite the company's unique position in the market.




                                                                                         65
7.      Conclusions

PTS has conducted an analysis to ascertain whether there is any reason to define a special
market for dark fibre besides the markets defined by the Commission in its
Recommendation on relevant markets. In this connection, it is clear that (a) there is
currently a demand deficit for dark fibre and (b) the need for access to fibre capacity will
continue to grow in future years. The electronic communications market is facing
enormous investments in fibre-based infrastructure and not even TeliaSonera's existing
fibre infrastructure is deemed to be sufficient in order to meet future demand. In order to
encourage a positive trend in fibre-based infrastructure, it is important to minimise the
barriers to entry in the market so that stakeholders in the electronic communications
market can manage such growth on their own as far as possible. By fostering conditions
to help set up new infrastructure, there is also potential in place to bring TeliaSonera's
unique position to an end and thereby reduce its competitive advantages. One
assumption of the regulatory framework governing electronic communications is the
presence of competition as far down in the production chain as possible. If possible,
competition should already be present at the infrastructural level. As pointed out in
Section 5.2, the preconditions for replication should vary between different parts of the
country and different parts of the network. However, in light of the above-mentioned
discussion, it is important for all markets within the area of electronic communications
that this occurs where it is feasible.

PTS has observed that there is currently excess demand for dark fibre, which is partly a
consequence of inadequate access to the optical fibre available, and partly due to
insufficient market prerequisites for the setting up of and access to new infrastructure.

PTS has also observed that there are several indicators suggesting that TeliaSonera has a
dominant position in the Swedish fibre market. TeliaSonera is by far the largest owner of
fibre-based infrastructure, with a market share of approximately 50 per cent. This market
share combined with other factors, such as access to comprehensive ducting, the size of
TeliaSonera and not least TeliaSonera's actual conduct in the market, could be interpreted
to mean that TeliaSonera has significant power in the dark fibre market. However, several
factors suggest that dark fibre at wholesale level should not be defined as a particularly
relevant market at the present time and should consequently not be subject to ex ante
regulation.

Special obligations should only be imposed when the competition in a market is not
working effectively and the market is not expected to be able to move towards effective
competition on its own. The aim of regulation is to foster conditions so that the market
can function effectively and, if these conditions are already present in the market, there is
a risk that regulation could make it more difficult for the market to stand on its own two
feet.

As regards the wholesale dark fibre market, PTS has observed that there are severe
barriers to entry, both of an economic and regulatory nature. However, it is not definite
that the economic barriers to entry are so high that they are insurmountable everywhere;
rather, certain stakeholders are making the assessment that they are able to roll out new
fibre in some locations, despite the great expense. In many cases, these stakeholders will
choose to provide dark fibre. It is worth noting in particular here that the economic
barriers to entry are considerably lower for an operator that already has an extensive


                                                                                            66
network and good access to ducting, since fibre for connecting new customers needs to
be rolled out for shorter distances and this can take place at a lower cost. However,
besides the economic barriers to entry, there are also different types of barrier; for
example, difficulties in concluding agreements with land owners and obtaining the
necessary licences and permits. It is crucial to remove these barriers as much as possible,
and both government agencies and municipal authorities have many opportunities to
facilitate the rollout of new fibre through their actions.

There are already a number of stakeholders besides TeliaSonera in the wholesale dark
fibre market; not least in the form of approximately 150 municipal networks. In light of
the presumed high demand for optical fibre, there is reason to expect that their rollout
will continue over the next few years, as will TeliaSonera's. Municipal networks also
appear to have an increasingly positive attitude to offering dark fibre as a wholesale
product. Development is also underway by which municipal networks may come to
compete with TeliaSonera's national range of dark fibre to a greater extent by means of
uniformity in their product ranges, pricing and ordering procedures. For this reason, PTS
perceives that the wholesale dark fibre market has the prerequisites to move towards
effective competition, even without special ex ante regulation.

Consequently, PTS does not find any justification at the present time to define a special
market for dark fibre and to impose special obligations on this market. However, PTS
intends to follow up this report over the next twelve months and to have results ready to
publish during the second quarter of 2009; that is, one year from the publication of this
report. PTS's work on analysing other adjacent markets, for example, the market for
access to network infrastructure (Market 4) and the market for broadband access (Market
5), will run in parallel with this. PTS will also commence a project to review the markets
for leased lines. The conclusion of this report – that there is no reason at the present time
to define a special market for dark fibre – does not anticipate the assessments that PTS
may make of these other markets nor the need to regulate these markets. This means that
the conclusions of this report consequently cannot be taken as justification for it not
being possible to impose any regulation concerning dark fibre during the next twelve
months. On the other hand, the present report obviously constitutes an important basis
for these analyses, since it has provided PTS with valuable information about the market
and the existing competition problems in relation to dark fibre and will naturally be
utilised in the continuing SMP work. The analyses of other markets may also be of
significance to the situation in the dark fibre market. There is a clear link between these
different markets, which means that the analyses must in part be conducted in parallel.
This makes it important to view this analysis as part of a larger body of work relating to
competition in networks with a view to fostering better conditions for end users, which
are those that are ultimately affected by any competition problems in the wholesale
markets.

The stakeholders that are making investments in order to meet the surplus demand will
be of great significance to the development of the market and the state of competition in
the future. One crucial factor for a positive market trend is that all operators are given
every opportunity to roll out optical fibre. This also requires municipal networks to
continue to move towards increased transparency, which has already started. There are
consequently a number of measures that government can take in order to facilitate the
development of the market. These include:




                                                                                          67
       •    Municipal networks should, to a much greater extent than is presently the case,
            lease out both ducting and dark fibre to other stakeholders as a wholesale service.
            PTS has previously emphasised the importance of open networks. In the
            assessment of the Agency, the best conditions for competition arise when access
            is granted at a level that is as unrefined as possible.
       •    Access to existing ducting, including ducting that was rolled out for purposes
            other than electronic communications lines, should be made easier.
       •    Non-discriminatory treatment by landowners. In particular, municipal authorities
            should take more responsibility to ensure that all parties receive every
            opportunity to establish and run parallel fibre infrastructure and that this is done
            on equal terms. It is in the public interest of municipal authorities that vital
            public fibre infrastructure is established using private capital and that long-term
            sustainable competition can be achieved.
       •    More effective planning of IT infrastructure on the part of public authorities and
            municipalities in accordance with the proposals previously made by PTS. This is
            underpinned by the proposals made by ‘Broadband 2013’ regarding how the
            scheduling of municipal IT planning can be incorporated in the municipal
            authorities' outline development plans and detailed development plans.30
       •    Improved collaboration between infrastructure owners. A measure that was
            previously proposed by PTS and which would facilitate municipal collaboration
            would be to give municipal authorities more opportunities for inter-municipal
            collaboration in the broadband sector. This would also be made easier through
            improved and clearer municipal planning of IT matters.
       •    Improved conditions for joint laying. PTS made proposals concerning this in its
            report entitled 'Proposed Broadband Strategy for Sweden' (PTS-ER-2007:7) and
            the views that applied then are still applicable today. Joint laying and the
            utilisation of existing ducting are becoming increasingly necessary. Considering
            the fact that excavation costs constitute the largest expense when rolling out
            optical fibre, this should be the most effective means of making this work less
            expensive and more straightforward. Joint laying applies when several operators
            are to roll out fibre, but perhaps in the first instance in conjunction with the
            planning of electricity or water supplies or when building roads. In urban areas,
            joint laying is also a prerequisite for limiting the problems that arise in
            conjunction with excavation work. This is also necessary for efficiency reasons in
            sparsely populated areas and between communities; for example, we mentioned
            that connections up to base stations will become increasingly fibre-based. Masts
            are already being shared by operators and many of these masts are located in
            inaccessible areas, which means high rollout costs when they are to be connected
            to fibre. It would be extremely inefficient to have all such operators burying their
            own fibre.
PTS is conducting an ongoing dialogue with SALAR and the Swedish Urban Network
Association about how they can work together to achieve a positive trend in the
municipal management of IT issues. This work will naturally continue. The municipal
authorities are key stakeholders as regards the future rollout of IT infrastructure, because
they have greater potential to affect the rollout and have great interest in this taking place,
since this rollout has a crucial role for socioeconomic development. Consequently,
political control is important in order to achieve a generally positive attitude to setting up


30   Appendix 4, and also Swedish Government Official Report – SOU 2008:40 p. 84f


                                                                                              68
fibre-based infrastructure and for running municipal operations such as issuing licences,
permits and municipal networks.
Another factor that is significant to the development of the market is TeliaSonera's
continuing conduct, as this obviously has a bearing on the scope of the competition
problems.

7.1.    Closing comments
PTS has ascertained that the wholesale dark fibre market is encumbered by certain
competition problems associated with TeliaSonera's market position and actual conduct.
However, PTS has also found that there are factors that could help to reduce these
problems, even in the absence of ex ante regulation, and for this reason PTS has not
currently found any reason to define a relevant market for dark fibre. There are a number
of measures that the government should take to facilitate the positive development of the
market. PTS previously proposed several of these measures but, in light of this analysis, it
is even more pressing that these are implemented.

If PTS is to consider that the market itself is capable of moving towards effective
competition, indications that suggest a positive market trend should become apparent
relatively quickly. PTS intends to closely monitor market developments and if a clear
tendency towards enhanced competition cannot be perceived in the forthcoming twelve-
month period, there is reason to reconsider whether this wholesale market nevertheless
requires special obligations to be imposed under LEK. This continued analysis will take
place as part of the Agency's work in the SMP area and shall be coordinated with the
other analyses which PTS is currently conducting. Regardless of the outcome of its
continuing work, PTS intends to publish a follow-up of this analysis during the second
quarter of 2009; that is, one year from the publication of this report.




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                                                                   Appendix 1

        PTS's comments on the consultation
        response for dark fibre

       1. Introduction
On 25 March 2008, PTS published a draft report entitled 'Dark fibre – market and state
of competition'.31 PTS requested views from market stakeholders in conjunction with this
report. PTS was particularly interested in responses to the following questions:

       1. Does the description provided in the report agree with your perception of the
          market situation for dark fibre in Sweden?

       2. How would you be affected if the dark fibre market were to be left unregulated?
          Please submit your views on transmission networks and access networks

       3. What changes need to be made to market conditions in order to encourage the
          development of and access to optical fibre from both a regulatory and market
          economy perspective?

       4. Assuming that stakeholders have more opportunities to roll out fibre optic
          infrastructure in Sweden, how would this affect you over the next two years and
          five years respectively?

       5. What measures would you propose to improve the state of competition?

The period during which the report was circulated for consultation expired on 25 April
2008, and a total of nine consultation responses were received from the following
stakeholders:

       •    Swedish Urban Network Association;
       •    Stokab;
       •    SkeKraft;
       •    TeliaSonera;
       •    Telenor;
       •    Tele2;
       •    TDC;
       •    Swedish Competition Authority;
       •    Swedish National Rail Administration.
In some cases, consultation responses were made directly to the questions posed by PTS.
In other cases, these responses comprised more general views on the report and its
conclusions. Initially, it was established that the circumstances pointed out by the
consultation bodies in their consultation responses were known to PTS at the time of the
31   PTS-ER-2008:9 (draft)


                                                                                          70
analysis and were consequently part of the underlying documentation for this analysis.
PTS is also of the opinion that there is no justification at the present time – as a result of
the consultation responses received – to change any of the descriptions or conclusions
reached by PTS as regards the dark fibre market in Sweden. On the other hand, PTS has
determined that the consultation responses justify additional clarification as regards the
background to certain descriptions and conclusions. This will partly be done in this
section; otherwise, the views have resulted in clarifications and revisions of certain parts
of the final report.

The views of the consultation bodies and the need for clarification on the part of PTS
largely agree in content and primarily refer to the following areas:

    •   Product definition;
    •   Geographical delimitation;
    •   The dark fibre market in relation to certain relevant markets;
    •   Further justification for TeliaSonera's unique position;
    •   PTS's assessment of situations in which replication may be feasible;
    •   What would be the consequence of PTS's intention to conduct a new assessment
        of the market situation for dark fibre in a year's time?
There is consequently justification for addressing these topics in particular, which will be
done below. However, as stated above, all of the views submitted by the consultation
bodies have been carefully analysed by PTS and have resulted in certain revisions to the
previous text in order to clarify and supplement the descriptions and conclusions made
by PTS in the report.

2. Market description
In general, the eight consultation bodies largely share PTS's perceptions and description
of the dark fibre market and service. On the other hand, most are of the opinion that
PTS's description is not clear in terms of product definition and question why there are
no separate product markets for access and transmission. It was also expressed that an in-
depth analysis of the presence of different geographical markets should be carried out.
TeliaSonera is the only stakeholder that does not largely perceive that the market
description contained in the draft report agrees with the actual market situation.
TeliaSonera claims that PTS's description of TeliaSonera's changed range is incomplete
and unclear. TeliaSonera also claims that PTS's market definition and assessment of
significant market power are also incorrect as a consequence.

Most of the consultation bodies also appear to be uncertain about the link between the
analysis contained in the draft report and existing obligation decisions and future analyses
for other relevant markets that PTS must conduct, in addition to PTS's opportunities and
need to regulate these. This applies in particular to these markets: for wholesale (physical)
network infrastructure access (including shared or fully unbundled access) at a fixed
location (Market 4), for wholesale broadband access (Market 5), and for wholesale
terminating segments of leased lines, irrespective of the technology used to provide leased
or dedicated capacity (Market 6).




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2.1 PTS's assessment

In the assessment of PTS, the Agency has already discussed the issues concerning market
definition which were expressed by the consultation bodies in the draft report, but this
question obviously needs to be clarified further.

Based on the perspective from which PTS has assessed the supply and demand of dark
fibre in Sweden, PTS cannot currently perceive that there are such marked differences to
justify the definition of different product markets. As regards all infrastructure,
connection in one part of a physical network cannot be replaced by another connection
in a different part of the network. On the other hand, the characteristics of the product
are the same, regardless of where it is used in an electronic communications network, and
for this reason the characteristics that are in demand and those that are offered are also
the same throughout the network. As described by PTS in Section 4.1 of this report, dark
fibre is used throughout the network and at all levels. However, the purpose of the
wholesale dark fibre service remains the same and the product being purchased and sold
is the same. There is no substitute if a customer needs a product with the characteristics
that are inherent in dark fibre; on the other hand, there are situations where a purchaser
does not always need the characteristics inherent in the wholesale dark fibre service and
there may then be substitutes in these situations. For example, wavelengths may serve as
a substitute if the wholesale purchaser does not need a service that is as flexible as dark
fibre, or a copper access line may be a substitute if a wholesale purchaser does not need
transmission rates corresponding to the rates for dark fibre. If a wholesale purchaser is
demanding dark fibre, it is the combination of the characteristic features that is in
demand, and in these cases a wholesale purchaser cannot substitute a more refined
service or any other transmission technology for this, since these lack one or more of the
characteristics offered by the dark fibre service.

It should also be noted that this does not mean that dark fibre cannot serve as a
substitute for other services. The substitution relationships between two different
products do not have to be symmetric. Several consultation bodies have pointed out that
the product market should be divided into two markets: transmission and access.
However, in the opinion of PTS, there is no clear dividing line between a 'transmission
network' and an 'access network' that suggests that there should be two different product
markets. This does not mean that there are not certain differences in the supply and
demand situations depending on where dark fibre is offered in the network. However, as
regards dark fibre these are not sufficiently clear to justify having two different product
markets. It should be noted that PTS emphasised in both the draft and final reports that
the main problem appears to arise in the link from the transmission network to the
nearest interconnection point, which may suggest an entirely different definition of the
product market in future. With the development that is taking place in the market, a
possible division of the product market may become clearer over time, not least
depending on how investments and rollout are carried out. In this case, consideration
must be given to supply and demand, where the optical fibre is set up and the
competitive conditions. PTS considers that dark fibre is currently a national product
market, but that it may develop towards several product markets in time and that this
type of development will also indicate where these delimitations should be made.

This is also linked to the geographical delimitation. In the draft report, PTS clearly stated
that the presence of dark fibre varies geographically and that competition also varies
somewhat. In several places in the draft, PTS also explained that competition on market
terms will not arise in certain areas, since it is not financially feasible. Consequently,


                                                                                           72
service competition will be the only opportunity for end users to receive more advanced
services in some areas, combined with central government also taking responsibility for
setting up the infrastructure that is needed to achieve a modern IT society for everyone.
PTS cannot conceive the possibility of making any geographical market division at the
present time. Optical fibre infrastructure has been set up in different places, throughout
Sweden, to varying extents. The extent of this varies from one day to the next. For a
geographical division, general consideration needs to be given to the supply, regardless of
the number of stakeholders, which varies substantially in parts of a region, between
regions and in areas within a region. Furthermore, consideration needs to be given to the
supply, depending on the number of stakeholders, which also varies in parts of a region,
between regions and in areas within a region. Since the market is under development,
these factors are changing a great deal. PTS does not consider that it is currently possible
to clearly identify different areas where the competition conditions differ in a way that is
marked and long-term. On the other hand, it will be very interesting to monitor the issue
concerning the need for geographical limitation and it will be an obvious issue in
connection with the continuing assessment of the market situation.

As regards the analysis of other markets, PTS will conduct market analyses under LEK of
Markets 4 to 6 (see above) over the year. The results of these analyses are not ready yet.
As the markets are to be analysed from the perspective of technology neutrality, optical
fibre will be included in these analyses in addition to other transmission technologies. A
final determination has not yet been made as to the products to be included in the
respective market, but it is conceivable that regulation in these markets may cover fibre-
based products, both in access networks as well as in other locations in the network. It is
also conceivable that regulation will be imposed relating to dark fibre, either as a product
included in the relevant markets or as an obligation that is necessary for access to the
regulated product, which was the case as regards backhaul in the current LLU market.32
In this report, PTS has assessed whether or not there is justification to define a special
market for dark fibre and to impose regulation on this market. PTS has not taken a
definite position on whether or how dark fibre should be dealt with in other contexts.
For this reason, PTS does not consider that the conclusions drawn in this report conflict
with what PTS has previously stated on the issue of TeliaSonera's obligation to meet all
reasonable requests from other operators in terms of providing access to associated
installations linked to full and shared access; that is, collocation and access to other
relevant installations.33 The conclusions drawn in this report also do not anticipate PTS's
assessment as regards the need for or wording of ex ante regulation for Markets 4 to 6.

3. Market dynamics
In the view of most of the consultation bodies, the market does not have the dynamics to
justify it being defined as relevant. TDC, Telenor and Tele2 are of the opinion that the
market will not move towards competition in the foreseeable future. CESAR should not
be attributed exaggerated significance in terms of the development of the market, and
improved opportunities to roll out fibre-based infrastructure will not entail any
improvement to the competition or market situation. Furthermore, Tele2 considers that
PTS overestimates TeliaSonera's incentives to provide dark fibre as a consequence of its
current dimensioning of its rollout of optical fibre infrastructure based on future needs.




32   These are described in more detail in Section 3.5.2 of the report.
33   PTS's Order under Chapter 7, Section 5 of the Electronic Communications Act (2003:589), ref. 06-016366


                                                                                                         73
3.1 PTS's assessment

PTS maintains that the dark fibre market in Sweden is characterised by a certain level of
market dynamics. New optical fibre infrastructure is being rolled out by a number of
stakeholders in various locations in Sweden. Infrastructure is being set up in
communities, between communities and between regions. It is still too early to determine
how these investments will ultimately be related and work, whether as an electronic
communications network or parts of this type of network. Thus, one cannot draw a
definite conclusion that regulation is necessary for the market to move in a positive
direction. Clear evidence that the market cannot move towards effective competition on
its own is required in order to define and regulate a market that the Commission did not
consider to have such typical characteristics to necessitate ex ante regulation. In other
words, it does not suffice that the market is encumbered by problems; the criterion
assumes that these cannot be resolved without the help of ex ante regulation. PTS
considers that there is currently a lack of this type of clear evidence and, despite the
considerable problems in the market that the Agency pointed out in Section 3.6 of the
draft report, PTS is of the opinion that there are sufficiently comprehensive activities and
involvement from various stakeholders in order to deem that conditions are present for a
positive market trend. PTS is aware that relatively substantial changes are needed to
improve the market situation, but considers that it is far too early to go in and take
measures in a market where activities and investments are underway that may entail a
move towards more effective competition. This is not a question of a 'regulatory holiday',
but rather that the criteria imposed in the European regulatory framework as
preconditions for a market to be deemed as needing ex ante regulation have not been
satisfied.

In light of the views submitted by the operators about the role of municipal networks and
not least CESAR, PTS finds that there is reason to emphasise that significance must
obviously be attributed to the existence of municipal networks, their ownership of optical
fibre infrastructure and the investments that they have made. Whether these factors are
sufficient to resolve the problems in the market is nevertheless not a question that can be
given a definite answer at the present time. However, they are some of the factors that
suggest a positive market trend. The fact that the municipal networks' fibre products do
not entirely correspond to those previously offered by TeliaSonera does not mean that
their position and fibre-based infrastructure are not significant as regards the market or
future growth. PTS is aware both of the size of CESAR and the content of the project
and does not intend to suggest that this in itself is sufficient to resolve the problems. On
the other hand, the initiative suggests that measures are being taken in the market to
improve the situation. Consequently, CESAR may be viewed as an example of the fact
that demand is not regional and that it is not sufficient for operators to be able to
purchase dark fibre in individual geographic areas, and that initiatives can be taken and
are actually being taken that may be significant to the supply situation and competition in
the market.

TeliaSonera's future conduct obviously plays an important role in the continued growth
of the market. TeliaSonera could contribute to a market characterised by improved
competition by making it easier for market stakeholders to obtain access to the existing
fibre that is already available, particularly because TeliaSonera is the only competitor to
municipal networks in many locations.

Although PTS views developments in the market with optimism, and hopes for a positive
market trend, the Agency is aware that the developments need not move in that direction.


                                                                                              74
As pointed out in several places in this report, signs of a positive trend should be
apparent relatively quickly if PTS is to perceive that the market itself is capable of moving
towards effective competition. PTS will monitor this market closely and, as discussed
below, the result of the analysis will be communicated during the first six months of
2009. Consequently, the result of the analysis does not mean that the market itself is
capable of resolving the problems that are irrefutably present. Instead, PTS has drawn the
conclusion that – in light of the investments and activities that are nevertheless taking
place – we should wait for the result of ongoing activities before it can be claimed that
the market is not capable of moving towards effective competition without the help of ex
ante regulation.



4. Replication
The consultation responses showed that replication of fibre-based infrastructure will not
be feasible in many areas of Sweden due to the lack of a sufficiently large customer base.
It was also pointed out that only service competition, namely, competition higher up in
the chain of refinement, will be possible in certain locations, , since supply and demand
cannot justify either the general establishment of fibre-based infrastructure to meet the
demand in the form of dark fibre or replication.

4.1 PTS's assessment

Under the provisions of Chapter 1, Section 1, second paragraph of LEK, the purpose of
the Act is to give consumers, enterprises, organisations and public authorities access to
secure and efficient electronic communications and the greatest possible benefit regarding
the range of electronic communications services and their price and quality; this is to be
achieved mainly by promoting competition in the area. According to the theory about
what is referred to as the 'ladder of investment', which constitutes one of the foundations
of the European regulatory system within the electronic communications sector,
infrastructure-based competition is perceived to foster better preconditions for good
competition in the end-user markets than service-based competition, and should be
striven for where possible. The fact that this is usually not the case on the basis of
economic considerations means that one is instead striving for the provision of access to
bottleneck resources in the form of wholesale services that are as unrefined as possible.
However, this should obviously be made easier in cases where infrastructure-based
competition is possible.

In the draft report, PTS emphasised in several places the fact that rolling out fibre
infrastructure involves considerable investment. This consequently means that there are
considerable economic barriers to entry both between the various geographical areas and
between various parts of the network. According to virtually all of the assessments made,
the need for capacity will increase in such a way that additional fibre infrastructure will
need to be rolled out over the next few years. It is not clear how this will take place and
who will pay for this investment. In some areas, there is fibre-based infrastructure that
belongs to various stakeholders, whereas at other locations there is only one owner of
fibre-based infrastructure. In general, the greater the demand for fibre-based retail
services in an area, obviously the better the prerequisites are for rolling out new fibre
infrastructure. This means that there are better prerequisites for the rollout of parallel
infrastructure in some areas that have a larger customer base than in other locations. In
this context, it is worth bearing in mind what the relevant market definition looks like – it
is not a matter of an access network market, but a market that covers both access


                                                                                           75
networks in addition to intra-regional and inter-regional connections. Obviously the
conditions for replication vary depending on the location in the network. The greater the
distance in the network, the smaller the customer base and the poorer the conditions are
for replication.

There are probably many areas in Sweden where additional parallel fibre infrastructure
will not be set up without some financial support from government. Obviously, this also
means that it is impossible to achieve competition at an infrastructure level in certain
locations; instead, competition at a service level is the only alternative and in some
locations competition will not even arise. This is mainly a general issue about accessibility
to electronic communications services. As already pointed out, PTS previously34
expressed doubts concerning whether or not it is economically feasible or even
socioeconomically desirable to roll out parallel fibre networks for all end users. This does
not mean that it will be impossible to have replication in all parts of the network or at all
locations in the country. However, in this case it is up to the market stakeholders to make
a decision on the extent to which replication is possible and the exact location for it. It
should be obvious that it is desirable from a competition perspective that all stakeholders
perceiving a business opportunity in rolling out fibre-based infrastructure can do so
without regulatory barriers. PTS has observed that parallel investments are actually being
made at some locations and in some parts of the network. These should be facilitated as
much as possible so that they can be carried out in a way that is smooth and competition
neutral. This is particularly crucial at a time when Sweden is facing a need for
considerable investment in infrastructure over the next few years.

5. Further justification for TeliaSonera's unique position
TeliaSonera does not agree with PTS's conclusion that TeliaSonera is highly likely to be
considered to have significant influence on the market determined as relevant.
TeliaSonera considers that the measure used as a tool by PTS is incorrect.

5.1 PTS's assessment

PTS is of the opinion that TeliaSonera's unique position in the dark fibre market in
Sweden is significant. Access to optical fibre infrastructure is a prerequisite for leasing out
the wholesale dark fibre product both today and in the future. PTS's assessment is based
on TeliaSonera's total ownership of fibre-based infrastructure, the total distance of the
existing fibre coverage and the geographical distribution. TeliaSonera's share exceeds 50
per cent according to all measurements. Revenues in the wholesale market are not an
appropriate measure, as a stakeholder may have considerable access to optical fibre
without selling it as a wholesale service. Instead, this type of measure is more of an
indication as to whether or not the wholesale dark fibre product is the stakeholder's
business concept. Otherwise, several of the most significant indicators show TeliaSonera
to have a considerable and unique position at the present time.

6. New assessment of the market situation
Several of the consultation bodies have asked how PTS intends to continue with its work
related to dark fibre. These bodies want to know when and how this work will take place
and whether the conclusions drawn in the existing report mean that TeliaSonera will
receive a 'promise' that no special regulation of dark fibre will be implemented for at least
two to three years. TDC, Telenor and Tele2 point out the importance of a short-term
perspective.

34   Proposed Broadband Strategy for Sweden (PTS-ER-2007:7), etc., p. 7


                                                                                            76
6.1 PTS's assessment

As described in this report, PTS has assessed that there is potential for market dynamics.
However, PTS has also expressed a need to monitor market developments and to review
the need for intervention if developments head in the wrong direction. In the assessment
of PTS, the phase at which the market is in means that the impact of the current activities
should be visible in the near future. Several consultation bodies have pointed out that the
time aspect is very important and, because of this, PTS intends to closely monitor trends
in the dark fibre market in Sweden over the next twelve months. PTS intends to follow
up the current analysis during the coming twelve-month period and to have results ready
to publish during the second quarter of 2009; that is, one year after this report.

It is important to point out that the results of the analysis now being conducted refer to
the issue of whether there is any reason to define a special market for dark fibre.
Consequently, this analysis does not anticipate the assessments that PTS may make of
other markets, nor the need for or wording of the regulations imposed on these. At the
same time, PTS's work on analysing other adjacent markets, for example, the access
network market (Market 4) and the market for broadband access (Market 5), will run in
parallel with this. PTS will also commence a project to review the markets for leased lines.
The results of these analyses may also affect the situation in the dark fibre market.
Consequently, this means that the conclusions of this report cannot be taken as
justification for it not being possible to impose any regulation concerning dark fibre over
the next twelve months.




                                                                                         77
                                                               Appendix 2

Extent of the Stockholm/Malmö region, the
Gothenburg region and Malmö

The Stockholm/Mälar Valley region is defined as Greater Stockholm
(26 municipalities) according to Statistics Sweden and the municipalities that
border Lake Mälaren (8 municipalities), making 34 municipalities in total. These
are:

(Greater Stockholm, 26 municipalities)

Norrtälje, Sigtuna, Vallentuna, Upplands-Bro, Upplands-Väsby, Österåker, Järfälla,
Sollentuna, Täby, Danderyd, Vaxholm, Ekerö, Stockholm, Sundbyberg, Solna, Lidingö,
Nacka, Värmdö, Nykvarn, Salem, Botkyrka, Huddinge, Tyresö, Södertälje, Haninge,
Nynäshamn

Others (8 municipalities) that border Lake Mälaren

Köping, Hallstahammar, Västerås, Enköping, Håbo, Kungsör, Eskilstuna, Strängnäs

The Gothenburg region is defined as Metropolitan Gothenburg
(13 municipalities) according to Statistics Sweden, which includes:

Tjörn, Stenungssund, Lilla Edet, Kungälv, Ale, Alingsås, Öckerö, Gothenburg, Lerum,
Mölndal, Partille, Härryda, Kungsbacka

The Malmö region is defined as Greater Malmö (12 municipalities) according to
Statistics Sweden, which includes:

Kävlinge, Eslöv, Höör, Lomma, Lund, Burlöv, Staffanstorp, Malmö, Svedala, Vellinge,
Trelleborg, Skurup




                                                                                      78
                                                                  Appendix 3

Relevant markets

The following markets are defined as relevant in accordance with the Commission's
Recommendation of 17 December 2007; 2007/879/EC.

Retail level

1. Access to the public telephone network at a fixed location

Wholesale level

2. Call origination on the public telephone network provided at a fixed location

3. Call termination on individual public telephone networks provided at a fixed location

4. Wholesale (physical) network infrastructure access (including shared or fully unbundled
access) at a fixed location

5. Wholesale broadband access

6. Wholesale terminating segments of leased lines, irrespective of the technology used to
provide leased or dedicated capacity

7. Voice call termination on individual mobile networks




                                                                                           79
Dark fibre




                                                                           Appendix 4

Letter from the Broadband 2013 Inquiry
                                                      File ref. N2007:07/2008/1

 OFFICIAL GOVERNMENT REPORT
                                                      24 January 2008

 Broadband 2013 Inquiry                               Minister for Communications
 N 2007:07                                            Åsa Torstensson
 Special Commisioner                                  103 33 Stockholm
 Local Government Commissioner Åke Hedén
 103 33 Stockholm
 Mobile 070-542 46 88

 Issue of how the planning of IT infrastructure can be incorporated into municipal
 outline development planning and detailed development planning

 Under the directives issued by the Government (Directive N2007:118) Bredband i små orter och
 på landsbygd [Broadband in small communities and rural areas], the Broadband 2013 Inquiry is
 working, among other things, on evaluating the impact of current broadband support.
 According to the directives, the Inquiry may also deal with other related issues deemed to be
 relevant to the performance of the assignment.

 Within the framework of the terms of reference for my Inquiry, I have observed that the issue
 of a well-developed IT infrastructure is a complex area that cuts across many different sectors
 of society and policy. I have noted that the municipal IT infrastructure programme and the
 mapping and planning of IT infrastructure that is taking place at the present time have not
 been incorporated into the municipal planning process, as regulated by planning and building
 legislation.

 Various interested parties have forwarded views on this area to the Inquiry on several
 different occasions. The National Post and Telecom Agency (PTS) has proposed measures in
 line with this in its report entitled 'Proposed Broadband Strategy for Sweden'. The same
 assessment was made by the Swedish Institute for Growth Policy Studies (ITPS) in an
 evaluation of broadband policy conducted by ITPS on the assignment of the Inquiry. The
 collaboration project Länssamverkan Bredband [Cross-county Broadband Collaboration], run by
 the county administrative boards (based at the County Administrative Board in the County of
 Uppsala) and the Swedish Association of Local Authorities and Regions, recommends this
 type of change.

 In my assessment, access to IT infrastructure is of such importance that it should be dealt
 with by municipal authorities in a way that is similar to access to roads, electricity and water,
 both in outline development plans and in conjunction with detailed development plans. The
 issue of how this should be conducted should be dealt with as soon as possible.

 Postal address            Visiting address           Telephone exchange
 103 33 Stockholm          Karlavägen 102             08-405 10 00



PTS

National Post and Telecom Agency                                                                80
Dark fibre




                                                                                               2

      In other words, the planning of IT infrastructure should be incorporated into planning
      and building legislation in an appropriate way. This may, for example, involve IT
      infrastructure being of such public interest that it must be taken into consideration
      when making decisions on the use of land and water areas (Chapter 4, Section 1 of the
      Planning and Building Act (PBL)).

      Under Chapter 4, Section 1a of the Planning and Building Act, since 1 January 2008 it
      has been possible for municipal authorities to make decisions on a supplement to an
      outline development plan in order to meet the needs of a special interest. In the bill
      entitled Ett första steg för en enklare plan- och bygglag [The first step towards a simpler
      Planning and Building Act], 2006:07:122 (p. 37 ff), the Government stated that this
      type of thematic supplement may, among other things, result from the placement of
      wind power, the rollout of communications lines and technical supply systems. Other
      examples of supplements may include infrastructure planning and transport issues.

      I see two ways of resolving this issue. The National Board of Housing, Building and
      Planning can either be commissioned to analyse this issue and submit proposals on
      how the planning-related need for IT infrastructure should be met in the outline
      development planning and detailed development planning of municipal authorities.
      This assignment should include submitting proposed guidelines concerning the
      supplements as referred to in Chapter 4, Section 1a of the Planning and Building Act.
      The Swedish Association of Local Authorities and Regions recommends this solution.

      This issue can also be dealt with by the Government issuing a directive concerning
      investigation into the matter. This would be appropriate by means of a supplementary
      directive for the Inquiry M 2007:06 Översyn av vissa frågor i plan- och bygglagstiftningen
      [Review of certain issues in planning and building legislation] (Directive 2007:136).
      The Inquiry will submit a final report on 31 May 2008.

      Stockholm, 24 January




      Åke Hedén




      For information:


      Anders Carlgren, Minister for the Environment

      103 33 Stockholm




PTS

National Post and Telecom Agency                                                                    81
Dark fibre




                                                                                      Appendix 5

Utility easements

What is a utility easement?


A utility easement entitles someone to install and use a utility within an area encompassed
by someone else's land (property) (including the devices necessary for the purpose of the
utility). This right may only be granted for certain types of utility; for example, for utilities
forming part of an electronic communications network for public purposes (see Sections
1 to 3 of the Utility Easements Act).35 Following a statutory amendment in 2006, the
Utility Easements Act also applies to tunnels, culverts, pipes and the like (for example,
ducting for fibre optic lines) which are laid in order to install and use utilities in the future
(Section 2 a).

Utility easements can only be granted in property units; that is, land and buildings or a
facility belonging to the property. Utility easements may be granted in various types of
landholding; for example, building and industrial site leaseholds, streets and parkland,
private roads and public roads.

The main rule is that the space may only be utilised by the party that has been granted the
utility easement. However, this party may in certain cases have a need or even an
obligation to grant access to parts of this space to another party. For example, if PTS, in a
decision concerning special obligations under LEK for an operator with significant
market power, were to order this party to grant another party access in a certain way. The
Land Survey Authority, which is the authority that makes decisions on matters
concerning utility easements, may for this reason also order that the proprietor of the
utility easement must allow another party to install and use a utility within the space
granted. According to Government Bill 2003/04:136, a prerequisite for this is that there
must be a need to roll out additional utilities or devices within the utility space and this
need is attributable to a party other than the proprietor of the utility easement. Another
requirement is that it is impossible to grant a separate utility easement for the other user.
In other words, if there is no order covering this, the proprietor of the utility easement
cannot grant the space to another party.

Utility easements have several advantages compared with a right of use based on an
agreement or easement. First of all, utility easements are not restricted in time, but apply
permanently, which creates more security for the proprietor of the utility easement. In
cases where the right of use is based on an agreement, the agreement must of course be
renegotiated when the term of the agreement expires. A utility easement also has stronger
protection in terms of property law in the event of transfers/assignments and compulsory
purchase. For example, a utility easement does not have to be registered with the land
registry authority in order to definitely apply in relation to new landowners. It is also not
affected by changes to the structure of land holding. In addition, a utility easement is
often a less costly solution; for example, because registration costs, etc. are avoided. Last,

35   This section refers to the Utility Easements Act in all cases, unless otherwise stated.

PTS

National Post and Telecom Agency                                                               82
Dark fibre




but certainly not least, a utility easement, as opposed to a right of use, does not require
the consent of the landowner. This means that a utility easement may be established even
if this party opposes it.

Preconditions for utility easements


Several preconditions must be fulfilled for the grant of a utility easement. These are
contained in the provisions of the Utility Easements Act.

To begin with, the Act only applies to certain types of utility. As stated above, the Act
encompasses utilities included in an electronic communications network and empty
ducting (Sections 2 and 2 a respectively). The term 'utility' includes devices necessary for
its purpose, such as transformers, pumping stations and other equipment (Section 3).

In addition, a utility easement cannot be granted if the purpose ought appropriately to be
provided for in another way or the inconveniences of the grant from a public or private
perspective outweigh the benefits that can be gained through it (Section 6). Furthermore,
a utility easement may not normally be granted if it would be contrary to development
plans, etc. (see Sections 7 and 8). As a rule, a utility easement also cannot be granted if
material inconvenience to a public interest occurs (see Clause 10). On the other hand, as
pointed out, the consent of the landowner is not required.

However, if the property owner consents, a derogation from certain rules contained in
the Utility Easements Act may be allowed; for example, in terms of compensation
(Section 14).

Compensation for property owners


Property owners are entitled to compensation from the proprietor of the utility easement
for the encroachment that the grant gives rise to. When calculating such compensation,
the same principles basically apply as in connection with expropriation (Section 13). As
pointed out above, it is possible to deviate from this principle if the property owners
consent.

Procedure when applying for a utility easement


A utility easement is established through a land rights formation. The application must be
made in writing and submitted to the land registration authority. As part of the
procedure, the preconditions for the utility easement are examined; in which connection,
consideration is given to the interests of both society and private persons, as stated
above. During the investigation, the land registration authority must contact the persons
whose involvement is necessary to carry out the land rights formation procedure; for
example, the property owners and other public authorities (cf. Section 19). The party
applying for a utility easement may negotiate with the property owners itself and submit
such agreements together with the application. Otherwise, all agreements are concluded
within the framework of the land rights formation procedure. Although it is preferable
for an agreement to be reached, the land registration authority may make decisions even
if the parties are not in agreement. Consultation with other public authorities is often
necessary in order to hear their views on, among other things, water and sewerage issues,

PTS

National Post and Telecom Agency                                                         83
Dark fibre




nature conservation provisions, etc. Some land rights formation procedures may also
require work on site, such as staking out and taking measurements.

Costs related to the land rights formation procedure are paid for by the relevant
proprietary interests and the amount depends on the scope and complexity of the case.

Decisions concerning utility easements


If there are no impediments to the grant, the land registration authority shall issue a utility
easement decision following the conclusion of the land rights formation procedure
(Section 22). This decision states the conditions for the utility easement; for example,
purpose, space, compensation and any other provisions that need to be imposed such as
provisions concerning access to the area. Consequently, it should also show whether the
proprietor of the utility easement may grant the space to another party.

The utility easement is also announced by being reported in the Real Property Register.

Appeals


Appeals are generally subject to the same rules as under the Real Property Formation Act
(1970:988). This means that appeals against a decision of the land registration authority
may be made to the real property court within whose jurisdiction the relevant property
unit(s) is(are) located. Appeals against the rulings or decision of the real property court
are made to the relevant court of appeal, and appeals against the rulings or decisions of
the relevant court of appeal in their turn may be made to the Supreme Court.

Changing utility easement decisions


As described above, a utility easement decision applies permanently. However,
circumstances may arise over time that mean that there is reason to change such a
decision. For this reason, Section 33 of the Utility Easements Act prescribes that the
utility easement matter can be examined in a new land rights formation procedure if
conditions arise that have a substantial bearing on the issue or a clear need for review has
emerged. For instance, one circumstance that may give rise to such a clear need for
change, referred to in Government Bill 2003/04:136; special explanation for Section 33,
is where there is an access decision under LEK. As described above, since a proprietor of
a utility easement may not grant space to another party without special provisions
concerning this being contained in the decision, it would of course otherwise not be
possible to put into effect an access decision that requires such space.




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                                                                   Appendix 6

Bibliography

Bredband till hela landet – betänkande av utredningen Bredband 2013 [Broadband throughout
Sweden – report of the Broadband 2013 Inquiry], Swedish Government Official Report
SOU 2008:40
Broadband in Sweden 2007, National Post and Telecom Agency, 2007 (PTS-ER-2007:17)
Broadband Survey 2007 – a geographical overview of the basic prerequisites for access to
broadband, National Post and Telecom Agency, 2008 (PTS-ER-2008:5)
Företagens användning av IT 2007 [Corporate use of IT], Statistics Sweden December 2007
Proposed broadband strategy for Sweden, National Post and Telecom Agency, 2007
(PTS-ER-2007:7)
Samverkansprogram för elnätskommunikation [Collaboration programme for power line
communication], (Elforsk report 07:09)
Survey of Individuals 2007 - Swedish use of the Internet and telephony, National Post
and Telecom Agency, 2007 (PTS-ER-2007:26)
Swedish Telecommunications Market - Forecasts 2007-2011, National Post and Telecom
Agency, 2007 (PTS-ER-2007:25)
Swedish Telecommunications Market, National Post and Telecom Agency, 2007 (PTS-
ER-2007:27)


Electronic sources

www.arcep.fr

www. bundesnetzagentur.de

www.crtc.gc.ca/

www.ec.europa.eu

www.fcc.gov

www.itst.dk

www.kkv.se

www.lantmateriet.se

www.npt.no

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www.ofcom.org.uk

www.regeringen.se

www.scb.se

www.skanova.com

www.ssnf.se




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