Regulatory Observer Issue 38 17 May 2012

Issue 38, 17 May 2012

Contents

EC to Revise Funding of Airports 1International Regulatory Round-up2 Australian Regulatory Round-up 8

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EC TO REVISE FUNDING OF AIRPORTS

The European Commission (EC)has announcedplans to revise guidelines for financing airports and airlines in the European Union (EU). This follows the launch of a number of in-depth investigations by the EC into the payment of state subsidies to different regional airports throughout the EU. The investigations will consider whether state aid provided to the regional airports has been passed on to some airlines, including some low-cost budget airlines that operate in the EU.

Since January 2012, the EC has announced in-depth investigations into the financial arrangements of regional airports in France, Germany, Austria and Sweden, including:Nîmes(France), Carcassonne (France), Charleroi (Belgium), Angoulême(France), Dortmund (Germany), Saarbrücken(Germany), Zweibrücken(Germany), Lübeck-Blankensee (Germany), Klagenfurt (Austria), La Rochelle (France), Niederrhein-Weeze (Germany), Altenburg-Nobitz (Germany), Pau (France) and Västerås(Sweden)(see IP/12/44, IP/12/108, IP/12/156, IP/12/265 and IP/12/350).

Regional airports are those with annual passenger volume of less than one million and account for about half of the airports through the EU. Reports suggest that airports with less than one million passengers have difficulties remaining profitable.

At issue is whether state subsidies have been used to provide discounts for regional airport charges to airlines. That is, whether arrangements such as rebates and some marketing agreements provided by regional EU airports to some airlines that use the regional airports provide some airlines with an undue economic advantage over their competitors. A further issue is the use of public subsidies that may have been used to cover ordinary business expenses of airport operators, and that distort competition between airports, and with other industries within the transport sector. Subsidies that are provided for operating support are considered to unduly affect competition within the EU’s internal market.

For example, the EC has identified capital injections received by the operators of Klagenfurt airport in Carinthia, Austria, from the state at a federal and local level. The airport operates a discount scheme for airlines, and also provides additional marketing payments to some airlines. Between 2002 and 2006, the operator of Nîmesairport, received subsidies of over €2 million and cash advances of over €9 million. The operator of Carcassone airport received subsidies of at least €11 million between 2000 and 2010 to finance infrastructure projects at the airport, and, in addition, more than €8 million the EC considers to have been used to cover ordinary business expenses.

The EC has commenced a public consultation into the financing of airports and airlines in the EU (see IP/11/445) before revising its guidelines on aviation.

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INTERNATIONAL REGULATORY ROUND-UP

Communications

Europe

BEREC Announces Public Debriefing

Germany: Coverage Obligation for800Mhz Spectrum Met in Ninth Federal State

The Bundesnetzagentur has announced that mobile operators have met their coverage obligation for broadband access for small operators in Saxony. Telekom Deutschland GmbH, Vodafone D2GmbH and Telefónica Germany GmbH & Co OHG can now make unrestricted use of the 800MHz spectrum bought at auction in Saxony. Federal states had identified towns and districts with little or no broadband coverage. Network operators holding 800 MHz spectrum are required to provide broadband access gradually to these towns and villages, with priority to those with fewer than 5000 people. When the coverage obligation has been fulfilled in a federal state, network operators can then make unrestricted use of the 800 MHz spectrum in that state. The coverage obligation is now met in Baden Württemberg, Bavaria, Hesse, Lower Saxony, North Rhine-Westphalia, Rhineland Palatinate, Saarland, Saxony and Schleswig-Holstein.

UK: The Ofcom Invites Applications for First 21 Local TV Channels

The Ofcom has invited applicationsfor 21 new local television channels across the UK. This follows new duties given to Ofcom by Parliament to license local TV. The local TV channels will broadcast on a specially-reserved ‘multiplex’. The multiplex is a discrete amount of spectrum used for broadcasting over digital terrestrial TV. In addition to inviting applicants for 21 stations, the Ofcom is also inviting applications to manage the local TV multiplex.

UK: Homeserve Fined £750,000 forSilent And Abandoned Calls

The Ofcom has finedinternational home insurance and repairs company HomeServe £750,000 for making an excessive number of silent and abandoned calls to UK consumers. Silent and abandoned calls can be generated by automated systems known as diallers and answer machine detection (AMD) technology. Dialler systems automatically dial telephone numbers and connect the consumer to call centre agents. AMD technology disconnects calls made to answering machines. Problems occur when dialler systems generate more calls than are answered by call centre agents. AMD technology can end a call when a person has answered because it mistakenly identifies the call as being picked up by an answering machine.

Americas

US: FCC Launches First-Of-Its-Kind ‘Mobility Fund’ Auction to Accelerate Delivery of 3G

The Federal Communications Commission (FCC) has announceda competitive bidding process for the delivery of mobile services to areas in the US that currently lack 3G or 4G service. The bidding procedures involve a reverse auction procedure. Winning bidders must deploy either 3G services within two years, or 4G service within three years, of receiving the award. The Mobility Fund will award up to $300 million from the Commission’sUniversal Service Fund(USF) reforms. As part oflast year’s changes to the USF, the Commission made universal mobile service an express service goal, and created the Mobility Fund to help close the nation’s gaps in mobile wireless service.

US: FCC Adopts New Rules Permitting TV Channel Sharing by Broadcasters in Order to Free Up Spectrum under Incentive Auction

The FCC hasintroducedrulesthat allow multiple broadcast stations to stream individual programming while sharing a single channel. The rules are intended to make a significant portion of spectrum currently used by the broadcast television service available for new users, and allow for the preparation of a future incentive auction to address growing demand for wireless broadband. Specifically, two or more television licensees may voluntarily share a single six MHz channel.While stations need to retain at least one standard definition programming stream to meet the FCC’s requirement of providing an over-the-air video broadcast at no direct charge to viewers, they can tailor channel sharing agreements to meet programming and economic needs. Stations will employ a single channel and transmission facility but will each continue to be licensed separately, retain an original call sign, retain all the rights pertaining to an FCC licence, and remain subject to all of the FCC’s rules, policies, and obligations.

US: FCC Reforms Seek Efficient, Fair USF Contribution System

The FCC has introduced reforms that change how funding is collected to support universal access to voice and broadband. The USF is now paid for by an assessment on the interstate and international revenues of carriers, including long-distance revenues, as well as Voice over Internet Protocol. Contributors may bill consumers and business customers for the cost. The FCC has said that the previous contribution system has given rise to uncertainty, inefficiency, and market distortions. This is because services that compete directly against each other may have faced different treatment in relation to their contribution obligations to the USF. Further, compliance costs had increased substantially.

Oceania

NZ: New Zealand Commerce Commission Defines Criteria for Persons Potentially Liable For Telecommunications Development Levy

The New Zealand Commerce Commission (theNZCC)hasset out preliminary viewsidentifying categories of people potentially liable for the Telecommunications Development Levy (TDL) for the 2011-12 year. Following an earlier round of consultation, the Commission’sDraft Notification of Potential Liability for the Telecommunications Development Levy 2012set out the Commission's position on criteria for defining TDL-liable persons. It also provided a list of potentially liable persons. The indicative list now excludes Sky on the basis that it does not operate a component of a telecommunications network. However, it now includeslocal-fibre companies. Financial information will be sought to identify liability for the 2011-12 year. Only those with a revenue threshold of $10 million are liable. The TDL will be used to pay for the Telecommunications Service Obligations and other telecommunications infrastructure development in New Zealand. The NZCC sought comment from interested parties on the criteria for, and list of, potentially liable persons for the purposes of the 2011-12 TDL Liability Allocation Determination. Submissions closed on 9 May 2012. Cross-submissions close on 23 May.

NZ: Commerce Commission Issues Draft Determinations for UFB Information Disclosure

The NZCC has issued draft determinationsfor information disclosure requirements for companies who are building fibre networks as part of the Government’s ultra-fast broadband (UFB) initiative. The Commission is required to collect information on the costs and characteristics of the UFB fibre networks for regulatory purposes. The draft determination proposes that the fibre network companies must supply the NZCC with financial and network information annually. The Commission will publish summaries of this information on its website. Submissions closed on 15 May 2012.

NZ: Competition Becoming More Intense In Telecommunications Market

The NZCC has released its 2011 telecommunications annual monitoring report. The report analyses the state of New Zealand’s telecommunications markets. The report suggests that there has been a fall in market concentration in all sectors and that the market is more competitive. The report identifies a diverse range of competitively priced services offered to consumers. The consumption of mobile data doubled in the 2010-11 year. The number of fixed broadband connections increased since 2006, while there has been a decrease in revenue for fixed-line voice services. Other key findings include that revenue from mobile broadband is showing strong growth while mobile voice revenues are starting to decline. Further, while the number of fixed-line telephone connections is stable, the number of fixed broadband connections continues to grow steadily. Finally, investment increased from $0.92 billion in 2008-09 to $1.24 billion in 2010.

NZ: Commerce Commission Releases Draft Price for the Unbundled Copper Local Loop for Consultation

The NZCC has published a revised draft decision in relation to benchmarking the wholesale price for the unbundled copper local loop service (UCLL). The UCLL service allows Chorus’s competitors to use Chorus’s copper network between an exchange and an end-user’s premises to provide services to customers. The proposed changes will result in a reduction in the geographically averaged UCLL wholesale price from its current average of $24.46 to a new average of $19.75. The proposed UCLL prices will be phased in over two years from 1 December 2012. The NZCC is also consulting on proposals toinvestigate pricing principles for unbundled copper low frequency services (UCLFS). Currently the UCLFS price is the same as the UCLL price, but the services are different. Submissions on the draft decision are due by 1 June 2012. Cross submissions will then be due by 15 June 2012. The Commission expects to release its final decision by mid-August 2012.

Energy

Americas

US: FERC-NERC Report Calls for Improved Planning

A joint reportby the Federal Energy Regulatory Commission (the FERC) and the North American Electric Reliability Corporation (the NERC) has found that the September 2011 blackout that left 2.7 million customers in Southern California, Arizona and Baja California without power, stemmed from suppliers in the market operating in an unsecured state due to inadequate planning and a lack of awareness of system operating conditions on the day of the event. The joint FERC-NERC report on the blackout recommends that transmission operators and balancing authorities improve operations planning to account for: the status of facilities outside their individual systems; the effect of external operations on their own systems; and how operation of transmission facilities under 100 kiloVolts (kV) can affect the reliability of the bulk power system.

US: FERC Proposes to Adopt Standards on Demand Response, Energy Efficiency

The FERC has proposed to amend regulations to incorporate the North American Energy Standards Board’s (NAESB) business practice standards for the measurement and verification of demand response and energy efficiency resources participating in organised wholesale electricity markets. The proposed wholesale energy efficiency standards would provide information to more effectively evaluate the performance of energy efficiency of products and services. The standards include four measurement and verification methodologies, as well as a mechanism for resource providers to propose alternative approaches.

US: The FERC Opens Inquiry on Interconnection Facilities

The FERC has commenced an inquiryinto open access and priority rights for capacity on interconnection facilities. Currently, a generation developer may seek priority rights to unused capacity on its interconnection facilities, preserving the ability to phase in new generation projects. The policy is also intended to prevent undue discrimination by ensuring that third parties have access to capacity not being used by the owner of the interconnection facilities. The Notice of Inquiry (NOI) is in relation to whether the FERC should revise its policy on access to interconnection facilities and, if so, what alternative approaches should be taken.

US: FERC Approves LNG Export Project

The FERC has approveda proposal by Sabine Pass Liquefaction, LLC and Sabine Pass LNG, L.P. to construct and operate facilities to liquefy domestic natural gas for export to markets worldwide. This is the FERC’s first authorisation of a project that would export liquefied natural gas (LNG) from production resources within the United States.

Europe

CEER PublishesFifth Benchmarking Report on Quality of Electricity Supply

The CEER has publisheda fifth Benchmarking Report on the quality of electricity supply. The Benchmarking Report on the Quality of Electricity Supply provides an in-depth review of continuity of supply, voltage quality and of commercial quality. The report analyses data from 27 European countries and examines the quality of electricity supply levels and policy throughout Europe. The fifth report introduces information from ten new countries, including Switzerland, and a dedicated annex on quality of supply in nine countries.

Germany: Bundesnetzagentur Opens Consultation On First National Gas Network Development Plan

The Bundesnetzagentur has opened a consultationon its first national Gas Network Development Plan 2012-2022. The draft first national Gas Network Development Plan was prepared by the 14 transmission system operators and sets out technical measures that will be taken to change the transmission network in line with anticipated changes in demand, and to safeguard security of supply. It includes details of expansion measures needed in the next three years. Trends show a decline in gas consumption. However, this is uneven throughout Germany and demand overall for pipeline capacity is growing. There is also a trade-off between the ‘quality’ of the capacities to be made available (so-called capacity products) and the cost of network expansion. The consultation closes on 8 June 2012.

Northern Ireland: Work-Plan Published To Support Gas Storage Facilities

The Utility Regulator and the Commission for Energy Regulation have published a jointwork-planon regulatory areas to support gas storage facilities. This work-plan follows aconsultation paperon the treatment of transmission network tariffs for gas storage facilities that was published in June 2011 under the Common Arrangements for Gas (CAG) project. The work-plan continues with those work areas that were identified in the June consultation paper, including the treatment of costs for gas storage facilities connecting to the transmission network, and how these costs may be allocated. It also provides for work to examine the combined product tariff which was proposed in order to facilitate access to all-island storage by users.

Northern Ireland: Final Proposals for Guaranteed Service Standards for Gas Customers

The Utility Regulator has published a final proposals paperfor guaranteed service standards in gas. The paper details the proposed guaranteed standards of service and overall standards of performance that the Utility Regulator intends to implement for the Northern Ireland gas industry. Separate consultations will follow on both the draft regulations for standards of performance in individual cases and on the draft publication of overall standards.

Northern Ireland: Decision Paper Published on Electricity Connection Policy

The Utility Regulator has published adecision paperon electricity connection policy to Northern Ireland’s distribution system. The publication of the decision paper follows two previous consultations on15 November 2010and on10 May 2011. The consultations proposed that the 40 per centconnection subsidy be removed from the start of RP5 (the price control for NIE T&D on which a consultation will be published shortly), in order to promote cost-reflective charging. The Utility Regulator approved the removal of the connections subsidy for domestic customers and small businesses from 1 October 2012. The removal of the subsidy will reduce the costs paid by all electricity consumers. It ensures the full costs are paid for by the parties benefiting from the connection.