EU assessment of significant market power

Practical Law UK Articles 7-203-3689 (Approx. 18 pages)

EU assessment of significant market power

by Amanda Hale and Edouard Pontet, Herbert Smith; Andreas Neun, Gleiss Lutz; Annemarie Drahmann, Stibbe*

Market review requirements

General principles

The Regulatory Framework linked sector-specific regulation and competition law in a new way. The previous, more mechanistic approach to regulation was replaced by an economic approach where regulation is based on competition law principles. It requires NRAs to conduct market reviews to determine whether a particular market should be regulated.

Where a particular market is susceptible to ex ante regulation (that is, regulation to prevent an anti-competitive situation arising) and an NRA finds one or more undertakings to have SMP in that market, it must impose appropriate regulation on those undertakings in accordance with the provisions of:

Directive 2002/22/EC on universal service and users' rights (Universal Service Directive).
Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive).

In contrast, where no undertaking is found to have SMP, regulation must not be imposed and existing regulation must be withdrawn.

The following guidelines represent the starting point for an NRA's market analysis:

Recommendation on relevant product and service markets within the electronic communications sector (OJ 2003 L114/45) (Electronic Communications Product Market Recommendation).
Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services (OJ 2002 C165/06) (SMP Guidelines).

Relevant markets

The NRAs must define markets that are appropriate to national circumstances (particularly relevant geographic markets within their territory) and in accordance with the principles of competition law. The Commission identified, in the Electronic Communications Product Market Recommendation, 18 relevant markets as being susceptible to ex ante regulation. Markets 1 to 7 concern retail level markets (for example, access to the public telephone network at a fixed location for residential customers (market 1)). Markets 8 to 18 concern markets at the wholesale level (for example, wholesale broadband access (market 12)). For the list of the relevant markets, see the full text of the Electronic Communications Product Market Recommendation at http://ec.europa.eu/information_society/policy/ecomm/doc/info_centre/recomm_guidelines/relevant_markets/i_11420030508en00450049.pdf. NRAs are only able to depart from the recommended market justifications where justified by national circumstances.

SMP

The market review uses the following definition of SMP (Article 4, Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (Electronic Communications Framework Directive)):

"An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers."

This is also the definition that the case law of the European Court of Justice has given to the concept of dominant position under Article 82 of the EC Treaty.

An operator that has SMP on a specific market can also be deemed to have SMP on a closely related market. This occurs where the links between the two markets allow the market power held in one market to be leveraged into the other market, strengthening the market power of the operator.

Remedies

When an SMP determination is made, the NRA must impose appropriate requirements on the SMP operator to remedy the situation. The Regulatory Framework provides NRAs with a number of mechanisms intended to give them the flexibility to design appropriate remedies to deal with any market failures that they have identified, to achieve their regulatory objectives.

For wholesale markets, the categories of remedies available include:

Transparency.
Non-discrimination.
Accounting separation (separation of accounts between various businesses).
Access obligations (requirements to provide access to the SMP operator's network).
Price control.

In retail markets, the remedies can include requirements not to:

Charge excessive prices.
Inhibit market entry or restrict competition by setting unsustainably low prices.
Discriminate between end-users.
Unreasonably bundle services.

Remedies that are imposed must be:

Based on the nature of the problem identified.
Proportionate.
Justified.

Commission supervision

The market review procedure is subject to the Commission's scrutiny under the Community consultation mechanism contained in Article 7 of the Electronic Communications Framework Directive. This requires NRAs to notify the Commission and other NRAs of their findings concerning market definition and SMP analysis where the proposed measure would affect trade between member states, and the regulatory requirements they intend to impose or remove. The Commission then has one month to assess the notification of the proposed measures.

The Commission can conduct a more detailed investigation where it considers that, in relation to market definition or SMP analysis, the proposed measures will create a barrier to the single market, or it has serious doubts as to the measures' compatibility with other areas of Community law (in particular, the common policy objectives that all NRAs must pursue).

Following this investigation, if its concerns are confirmed, the Commission can, through a veto decision, require the NRA to withdraw the draft measures and possibly resubmit its market analysis at a later stage. At present, the veto system does not extend to the regulatory remedies that the NRAs propose should be imposed (see above, Remedies). However, the Commission is considering removing this limitation (see below, The Commission's review of the market review procedure).

Status of market reviews

Overview

In some EU member states (Estonia, Belgium, Latvia and Luxembourg) the NRAs have only just started their market reviews, and only a handful of proposed measures have been notified to the Commission. However, many countries have almost completed their analyses, predictably the UK, France, Germany, the Netherlands and Spain and, recently, Italy, but also Austria, Ireland, Sweden, Denmark, Hungary, Portugal, Lithuania and Slovenia. Currently, only Finland has completed the market review process in all 18 markets. Despite the delays, over 450 notifications of proposed measures have been made to the Commission. The Commission has only vetoed proposed measures in a handful of cases (see box, Commission vetoes).

The markets that have been deemed to be effectively competitive are concentrated around retail services (markets 1 to 7) (in particular, international call services). The only markets where regulation has been withdrawn in the fixed wholesale markets (markets 8 to 14) are the market for wholesale trunk leased lines (market 14) and, in some cases, the market for fixed transit services (market 10). In the mobile markets (markets 15 to 17), the market for access and call origination (market 15) is in most cases deemed competitive.

However, the other markets (subject to a few exceptions) continue to be regulated. A more detailed consideration of the outcome of the reviews in the UK, France, Germany, Netherlands, Spain and Italy is considered below. Where a market analysed by the NRAs of those countries corresponds to one of the markets listed in the Electronic Communications Product Market Recommendation, this has been referred to in the chapter.

For further information on the status of market reviews as of 7 June 2006, a table has been published on the European Commission's website, which appears at http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/annualreports/12threport/index_en.htm.

UK

Status of reviews. In early 2003, the Office of Communications (Ofcom) (at that stage known as Oftel), the UK NRA, began the process of market reviews and determinations. It has now nearly completed its reviews, although one remains outstanding in relation to international roaming (market 17), which Ofcom decided to delay in view of the current proposals from the Commission to introduce regulation to reduce international roaming charges.

Ofcom departed from the recommended market definitions provided by the SMP Guidelines and the Electronic Communications Product Market Recommendation in a number of cases. Ofcom also reviewed a number of markets that were not listed in the Recommendation, including:

Wholesale international services to territories outside the UK.
Wholesale unmetered narrowband internet connection (except in relation to traffic originating in the Hull area where Kingston enjoys a dominant position (see below, Findings of SMP)).

The Commission commented on these departures, in particular expressing reservations on:

Ofcom's position that third generation (3G) call termination was in the same market as second generation (2G) termination due to the technical and commercial constraints preventing the setting of separate charges for these services (market 16) (see below, Findings of SMP).
Ofcom's general route-by-route (analysing the markets on a separate country-to-country basis) approach to the definition of the international retail (markets 4 and 6) and wholesale international markets (not listed in the Recommendation).
Ofcom's position that the market for wholesale unbundled access to metallic loops (LLU) market (market 11) should be widened to include the market for copper-looped based and cable-based wholesale local access (see below, Findings of SMP).

However, no proposals have been vetoed by the Commission. Ofcom's final SMP determinations (as well as its choice of remedies) have, despite the Commission's reservations on market definitions, been as predicted and pre-existing regulatory approaches have generally been confirmed.

The UK has failed to implement the new regulatory regime in Gibraltar (and is subject to infringement proceedings as a result) and no market reviews have been carried out in relation to Gibraltar's markets.

Competitive markets. Ofcom has withdrawn regulation from the following markets, which it found to be competitive:

Wholesale mobile access and call origination (market 15).
Retail business international calls (excluding the Hull area) (market 6).
Wholesale international services (Ofcom originally found that BT and Cable & Wireless had SMP on certain routes, but in March 2006 withdrew the SMP determinations and removed the ex ante obligations imposed on them).
Wholesale unmetered narrowband internet termination (see above, Status of reviews).
The separate markets of retail and wholesale high and very high bandwidth symmetric broadband origination (market 13), and terrestrial radio transmission (market 18).

Findings of SMP. British Telecom (BT) has SMP in the following:

Fixed retail markets (markets 1 to 6). BT has SMP in 15 individual markets in the UK (excluding Hull), including:
- business and residential exchange lines;
- national calls to mobiles;
- residential international calls.
BT is subject to the following requirements:
- not to unduly discriminate;
- to publish charges in advance;
- to comply with price controls on a number of residential retail telephony services (with related obligations in relation to accounting separation). Ofcom is however proposing to remove all retail price caps on BT in July 2006;
- in the retail leased lines market (of up to 8Mbit/s), it must:
  supply on a cost-oriented basis (with price controls applying until June 2006);
  not unduly discriminate;
  publish reference offers; and
  comply with repair and delivery conditions.
Apart from the proposal to removal all retail price caps, Ofcom is also proposing removing regulation in relation to the business retail markets.
Fixed wholesale markets (markets 8 to 14). BT has SMP in the following:
- a number of individual markets within the call origination and transit markets (markets 8 and 10). It must:
  provide cost-orientated network access (including wholesale line rental, carrier pre-selection (CPS) and other services);
  not unduly discriminate;
  publish reference offers;
  notify amendments to charges (although this requirement has been removed for wholesale line rental);
  comply with controls on charges; and
  comply with quality of service conditions.
- fixed call termination (market 9). In this market each network was found to constitute a distinct market and therefore each operator (54 in total) has SMP and must provide termination on reasonable terms. BT is, additionally, subject to requirements concerning cost-orientation, cost-accounting, reference offers and charge notification as above.
- other fixed wholesale markets. BT has SMP in the:
  symmetric broadband origination (excluding Hull) and trunk segments;
  wholesale broadband access market (market 12); and
  wholesale local access market excluding Hull (which includes LLU) (market 11).
In addition to the requirements to provide network access, to publish reference offers, not to unduly discriminate and the notification of charges and quality of service conditions, BT must:
- provide specified services (for example, LLU services);
- comply with price controls (not in the trunk market but, for example, on partial private circuits and LLU services);
- comply with accounting separation and financial reporting requirements.
Similar requirements apply in relation to the supply of wholesale leased lines together with other obligations relating to delivery and repair (markets 13 and 14).

Kingston, which historically operated on a monopoly basis in the Hull area of the UK, has SMP in a number of markets in that area.

In the mobile markets, Vodafone, T-Mobile, O2, Orange and 3 all have SMP in relation to wholesale call termination on their networks (market 16). The following SMP conditions are imposed on O2, Orange, T-Mobile and Vodafone in relation to 2G termination:

Charge controls (from 31 March 2007, it is proposed that these will be extended to 3G termination).
Providing network access.
Prohibiting undue discrimination.
Publishing reference offers.
Notifying charges beforehand.

3 must give notice of price changes to Ofcom beforehand and give details of 2G voice call termination call volumes. Ex ante regulation was not imposed on providing 3G voice call termination services.

In relation to broadcasting, each of Crown Castle and NTL have SMP in the areas served by their relevant masts and sites for both analogue and digital terrestrial television transmission markets (another example of markets defined by reference to an individual operator's network). They must:

Provide cost-orientated access.
Publish a reference offer.
Not unduly discriminate.

Ofcom also identified a market for providing managed transmission services for analogue/and or digital terrestrial broadcasting transmission services within the UK to deliver a national broadcast service, and proposed to designate NTL and Crown Castle as joint SMP operators. However, Ofcom withdrew this notification after discussions with the Commission.

France

Status of reviews. The Regulatory Authority for Electronic Communications and Postal Services (Autorité de Régulation des Communications Electroniques et des Postes) (ARCEP) (formerly ART), the French NRA, started its market reviews in March 2003. It has now completed the process for 14 markets. The review of markets for leased lines (markets 7, 13 and 14) started only in November 2005 and is ongoing.

The following reviews have been started by the ARCEP but have been delayed:

As with the UK, the review of the international roaming market (market 17), until the Commission adopts its proposed regulation to reduce international roaming charges.
The review of access and call origination on the public mobile telephone networks market (market 15). The ARCEP withdrew its draft decision in 30 May 2005. This had found that Orange, SFR and Bouygtel had joint dominance in metropolitan France (that is, French European but not overseas territory). Following several mobile virtual network operator (MVNO) contracts being signed in spring 2005. The ARCEP announced that it would continue monitoring the market to assess the impact of the MVNO contracts on the competitive landscape. The Commission has requested a new draft decision by the end of 2006.

The ARCEP identified the following markets not listed in the Recommendation:

The market for wholesale broadband access delivered at a national level.
The wholesale market for short message service (sms) (text message) termination. The ARCEP is the first regulator to identify an SMS termination market as potentially relevant and the Commission is now keen for this market to be reviewed across the EU (see below, The Commission's review of the market review procedure).

The ARCEP has, to a large extent, followed the SMP Guidelines. In some cases, the Commission expressed doubts concerning certain positions taken by the ARCEP in relation to call termination. In particular, it questioned the ARCEP's conclusions that call termination to non-geographic fixed numbers and geographic fixed numbers were in the same market and call termination on mobile networks through bridging devices (hérissons) fell within the market for call termination on mobile networks (market 16). The Commission agreed, however, that the market for value-added voice services was separate from other fixed telephony markets, and endorsed the ARCEP's decision not to include Voice over Broadband (VoB) in the markets for fixed telephony (on the basis that these services were provided by broadband internet service providers over wholesale access lines which were already regulated (markets 11 and 12)).

The ARCEP reviewed the markets for metropolitan France and also overseas territories. It identified separate markets for transit services:

In each overseas territory.
Between the overseas territories.
Between the overseas territories and metropolitan France.

In relation to broadcasting, the ARCEP does not consider the markets for radio broadcasting services to be relevant. It considers that the Commission may need to define a transnational market for satellite broadcasting services.

Competitive markets. No markets have been found to be competitive.

Findings of SMP. France Télécom has SMP in nearly every market review completed (markets 1 to 6, 8 to 12 and 16). Operators have SMP on their own networks in markets for call termination on individual mobile or fixed networks (markets 9 and 16), while Telediffusion de France (TDF) has SMP on the market for wholesale analogue and digital terrestrial television broadcasting services (market 18).

Draft measures. There are a number of draft measures that are yet to be adopted and, in some cases, notified to the Commission:

The draft decision on the market for SMS termination (identifying each mobile operator in metropolitan France as having SMS on its network) was only notified to the Commission in June 2006 and is yet to be adopted.
The draft decision on the markets for leased lines (markets 7, 13 and 14) (identifying France Télécom as having SMP) has been submitted to the Competition Council (Conseil de la concurrence) (the French competition authority), but not yet notified to the Commission.
The draft decision on joint dominance of the mobile networks operators in metropolitan France is currently withdrawn (see above).

For an overview of its market review procedure see www.arcep.fr/dossiers/marches/index-d.htm; for a summary of the remedies imposed see www.arcep.fr/dossiers/marches/marches-obligope.pdf.

Germany

Status of reviews. The Federal Network Agency (Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen) (FNA) (formerly known as RegTP) is the German NRA. The FNA began the process of market reviews in February 2004 and it is now near completion. Market reviews only remain outstanding in relation to:

Wholesale mobile access and call origination (market 15).
International roaming (market 17).

As in the UK, the FNA departed from the Recommendation in a number of cases and reviewed a number of markets it did not include. In one case, the departure led to a veto decision by the Commission, which required the FNA to withdraw its draft notification in relation to proposed measures for the market for call termination on individual public telephone networks provided at a fixed location (market 9), and its finding that the incumbent operator, Deutsche Telekom (DT) was dominant on that market (C(2005)1442 final of 17 May 2005, case DE/2005/0144). The FNA has submitted an amended notification (see box, Commission vetoes).

The treatment of "emerging markets" by NRAs was also debated. The FNA, for example, intended to exclude access through very high data rate digital subscriber line (VDSL) connections from the markets for wholesale broadband access (market 12) for a minimum of two years. However, following the Commission's comments, the draft notice of measures on the market now includes that service in the market. The Commission has, however, recently expressed the view that there should be no ex ante regulation of emerging markets (see below, The Commission's review of the market review procedure).

For an overview of the national consultation procedures concerning the market definition and market analysis of the FNA with links to the relevant documents see www.bundesnetzagentur.de/enid/5d39e129d58f6cc0a77ccd19052c5e89,0/Einheitliche__Informationsstelle/Nationale_Konsultationen_11i.html.

Competitive markets. The FNA has determined that the following markets are competitive:

Fixed retail international services for residential customers (market 4).
Fixed retail international services for business customers (market 6).

Findings of SMP. As in other countries, it is the former incumbent (in this case, DT) and its affiliated companies (T-Systems is mentioned specifically as an affiliated company, which has SMP in relation to market 7) that have SMP across a wide range of the relevant retail and wholesale markets (markets 1 to 3, 5 and 7 to 14).

In certain recommended markets, DT only has SMP in a sub-market. For example:

DT is designated as an undertaking with SMP in the local loop unbundling market (market 11) in relation to a copper pair, but not in relation to optic fibre loops.
DT is designated as having SMP in the markets for call origination and call termination on telephone networks at fixed locations and transit services in the fixed public telephone network (markets 8 to 10), except for the market for transit and termination of calls from mobile networks to mobile networks.

In the mobile markets, the mobile network operators Vodafone D 2, T-Mobile Deutschland, O2 (Deutschland), and E-Plus Mobilfunk, all have SMP in relation to voice call termination on their individual mobile networks (market 16).

In relation to the broadcasting markets, a number of operators have SMP in the broadcasting transmission services market (market 18) in the local German states in which they operate cable networks for broadcasting transmission. These are:

Kabel Baden-Württemberg (in Baden-Württemberg).
Unity Media (in Hesse and North Rhine-Westphalia).
Kabel Deutschland (in other German states).

In addition, also in relation to market 18, T-Systems Enterprise Services has SMP for supplying terrestrial broadcasting transmission facilities for the transmission of very high frequency (UKW) radio signals to content providers.

Following a finding of SMP, the FNA must impose detailed remedies on the undertaking in question through issuing a "regulatory order" (Regulierungsverfügung). Until those new regulatory orders under the Telecommunications Act 2004 (Telekommunikationsgesetz) (TKG 2004) are issued, earlier SMP determinations of the RegTP and the related obligations remain in force until they are replaced. New regulatory orders have been imposed on DT in relation to SMP findings in a number of fixed markets, including:

Markets 8 to 10 (FNA Decisions 5 October 2005 and 16 November 2005). The DT must ensure interconnection with its public telephone network provided at a fixed location, provide call termination and grant access, and transit and termination for connections from public telephone networks to online services. The relevant agreements must be based on objective criteria, transparent, grant equally good access and be fair and reasonable.
The rates for interconnection and collocation are both subject to ex ante approvals by the FNA. Rates set for granting access, transit and termination for connections to online services are reviewed by the FNA ex post (after they are set).

Market 11 (FNA Decision 20 April 2005). The DT must grant bundled or unbundled access to the local loop (Teilnehmeranschlussleitung) (TAL) in the form of a copper pair and collocation for the purpose of granting access (including obligations to give access to the respective facilities and to allow co-operation between undertakings with access entitlements).
In addition, the access agreements must:
- be based on objective criteria;
- be transparent;
- grant equally good access;
- be fair and reasonable.
The rates for granting access and collocation are subject to ex ante approvals by the FNA.

Regulatory orders have also recently been imposed on the 52 alternative network operators (FNA Decision 7 June 2006). The requirements are identical to those above, imposing obligations related to interconnection with the public telephone networks on all other network operators, dealing with providing access, collocation and providing termination services and imposing requirements of non-discrimination and transparency. However, rates for interconnection and collocation are subject to the FNA's ex post price regulation and there are no obligations to keep separate accounts or to publish a reference offer.

Draft measures. Other regulatory orders to be imposed on DT are still in draft form (concerning markets 1 to 3, 5 and 12) and still the subject of consultation between the FNA and DT. In addition, the latest drafts of new regulatory orders imposing obligations on the mobile operators have only very recently been published by the FNA. When implemented, they will require the prior approval of tariffs by the FNA and the publication of a standard call termination reference offer (press release of the FNA at www.bundesnetzagentur.de/media/archive/6644.pdf). They have been proposed because, in the FNA's view, the opportunity given to the mobile network operators during the national consultation process of the draft determinations, to avoid ex ante rate regulation by reducing tariffs has not been taken. No draft orders have yet been published in relation to the broadcasting market. All draft regulatory orders which might have an impact on the European market are subject to comments from the Commission and other NRAs.

For an overview of the regulatory orders issued under the new TKG 2004 see www.bundesnetzagentur.de/enid/744d786b1bb13471cd543170a317c8bd,0/Einheitliche_Informationsstelle/Regulierungsverfuegung_11l.html.

The Netherlands

Status of reviews. The Independent Telecommunications Authority (Onafhankelijke Post en Telecommunicatie Autoriteit) (OPTA), the Dutch NRA, has nearly completed its market reviews. As with other countries, the market relating to international roaming is still outstanding (market 17). In addition, although OPTA has published its draft decision concerning the national wholesale market for delivering transmission services of analogue FM radio signals and AM radio signals (high power) to broadcasters (that is, radio stations) (part of market 18), it is still awaiting formal approval.

In its reviews, OPTA departed from the Recommendation's market definitions in a number of cases:

Retail markets. OPTA distinguished between low- and high-capacity connections rather than distinguishing between access for residential and business customers (markets 1 and 2), and made no distinction between residential and business customers in the calls markets (markets 3 to 6). OPTA did, however, distinguish separate retail markets for:
- fixed-to-mobile calls;
- narrowband data services;
- calls to information numbers; and
- calls to personal assistant numbers.
It also distinguished separate markets for less than 2Mbit/s and 2Mbit/s leased lines (market 7).
Wholesale markets. OPTA identified a market for wholesale access on the public telephone networks provided at a fixed location (markets 1 and 2). This market consists of:
- wholesale access for low capacity connections (wholesale telephony connections over which a maximum of two conversations can be held at the same time); and
- wholesale access for high capacity connections (wholesale telephony connections over which three or more conversations can be held at the same time).
OPTA distinguished between (market 12):
- low quality wholesale broadband access (products with an overbooking ratio greater than 1:20); and
- high quality wholesale broadband access (products with an overbooking ratio of 1:1 to 1:20).
Finally, OPTA adopted a narrower definition of the relevant wholesale market for broadcast transmission services than in the Recommendation (market 18).

Although the Commission has commented on these market definitions, OPTA's final SMP determinations, and the choice of remedies imposed, are almost identical to the draft decisions.

OPTA also reviewed a market that was not listed in the Recommendation: the retail market for supplying free-to-air radio and television packages through cable transmission in the coverage area of the providers, referred to as market 19. The Commission expressed serious doubts, however, over OPTA's proposed measures in relation to this market, and to avoid a veto, OPTA amended its draft decision by withdrawing the proposed pricing regulation and limiting the decision to a period of one year.

Competitive markets. The following markets are competitive:

The market for publicly-available international phone services terminated at a fixed location for residential and business users (markets 4 and 6).
The market for low-quality wholesale broadband (part of market 12) (see above, Status of reviews).
The market for bundled segments of leased lines on a wholesale level (market 14).
The market for access and call origination on public mobile telephone networks (market 15).

Findings of SMP. KPN, the former incumbent operator has SMP across a range of retail and wholesale markets. As a result, OPTA imposed a number of requirements on KPN, including:

Tariff regulation (wholesale price caps and, at the retail level, both an upper limit safety cap and a lower limit combinatorial price squeeze test (that contains a test at both service level and market level)).
Access requirements.
Transparency requirements.
Non-discrimination requirements.

In relation to call termination at a fixed location (market 9), OPTA also imposed limited requirements on other providers, including conditions relating to access, transparency and price controls.

In relation to mobile telecommunications, OPTA found that the Dutch mobile operators have SMP in relation to termination on their own networks (KPN (including Telfort), Vodafone, T-Mobile, Orange and Tele2). OPTA imposed requirements concerning transparency and non-discrimination, and also required the operators to provide:

Cost-oriented tariffs.
Interconnection, following a reasonable request.

In relation to cable broadcasting, the following has taken place:

At the wholesale level, requirements are imposed on the five largest cable operators (UPC, Essent Kabelcom, Casema, Multikabel and Delta Kabelcomfort) in relation to their coverage areas. All five operators must comply with requirements of access, transparency and non-discrimination. In addition, UPC, Essent Kabelcom and Casema must provide access by cost-oriented tariffs.
At the retail level, OPTA concluded that each cable operator has SMP in its own coverage area. Conditions prohibiting (pure) bundling of services and requiring transparency apply to all cable operators.

Implementing the decisions has now started. OPTA published its draft wholesale price cap decision on implementing the tariff regulation requirement for the SMP operator, KPN, for the following markets:

Call origination on the public telephone network provided at a fixed location (market 8).
Call termination on individual public telephone networks provided at a fixed location (market 9).
Transit services in the fixed public telephone network (market 10).
Wholesale unbundled access (market 11).
Wholesale terminating segments of leased lines (market 13).

OPTA also published its draft implementation decision in relation to the relevant market for wholesale access to the public telephony network. This aims to provide the operational implementation of KPN's requirement to offer wholesale line rental (WLR). The final decisions have not yet been published.

All of the market review decisions by OPTA in relation to their market reviews are being appealed. The courts have not granted any provisional remedies however, and the decisions have therefore taken effect pending judgment.

Spain

Status of review. The Telecommunications Market Commission (Comisión del Mercado de las Telecomunicaciones) (CMT), the Spanish NRA, delayed completing most of its market reviews until early 2006. The CMT has now adopted final decisions in most of the 18 markets, except for:

The market for wholesale terminating and trunk segments of leased lines (where the public consultation has only recently been issued) (markets 13 and 14).
As with other countries, the wholesale national market for international roaming on public mobile networks (pending the Commission's proposals, which the CMT has publicly opposed) (market 17) (see below, The Commission's review of the market review procedure).

Almost all market reviews carried out by the CMT have received the Commission's comments, and these have been taken into account in all of the CMT's final decisions.

When reviewing the fixed retail telephony markets, the CMT proposed excluding voice over internet protocol (VoIP) from the telephony markets. This was the subject of particular criticism by the Commission. The CMT argued that as IP telephony did not have the same range of operations, and was not regulated in the same way, as publicly-available telephone services provided over public switched telephone network (PSTN) and integrated services digital network (ISDN), it did not fall within the same market, but was a complementary rather than substitutive service.

However, the Commission regarded this reasoning as insufficient and requested that the CMT carry out a proper competition law-based economic analysis within a year. If the conclusions that are reached by the CMT differ from its initial analysis, it must intervene. The Commission is concerned that as only two providers have been assigned VoIP numbers (one of which is the former incumbent Telefónica de España Sociedad Anónima Unipersonal (TESAU)), there is a risk that the incumbent may prevent access to the market for VoIP services in Spain.

Competitive markets. No markets are competitive.

Findings of SMP. TESAU has SMP in nearly all retail and wholesale markets (the situation in relation to mobile markets is considered separately (see below)):

Fixed retail level markets (markets 1 to 7). SMP was found on the basis of:
- market share;
- barriers to entry (sunk costs that are incurred and cannot be recovered);
- overall size;
- control of infrastructure;
- countervailing buying power; and
- vertical integration.
They are subject to the following requirements:
- prohibitions on anti-competitive behaviour, including prohibitions on:
  unfair discrimination;
  margin squeeze; and
  predatory prices.
- the need to give prior notification of all standard service offerings (as well as certain requirements in relation to special offers) (markets 1 to 6 only);
- CPS requirements and price controls for analogue individual access lines (in the form of price caps yet to be imposed) (markets 1 and 2 only);
- non-discrimination requirements (markets 1, 2 and 7 only);
- cost accounting (markets 1 and 2 only) and accounting separation requirements (markets 1, 2 and 7 only);
- transparency (market 7 only); and
- to offer a minimum set of leased lines at regulated prices and reference offer obligations (market 7 only).
Fixed wholesale markets. The CMT, following the Commission's prompting, found TESAU (as a group) to have SMP in:
- the fixed-call origination market (market 8), based on the following:
  market share;
  legal and structural barriers to entry;
  TESAU's position in closely related markets (in particular, the wholesale local access market); and
  vertical integration.
  It requires the TESAU to provide WLR to resolve market failures identified in the retail calls markets;
- the wholesale broadband access market (market 12). TESAU must:
  offer cost-oriented pricing;
  notify prices, and terms and conditions of its retail offerings (as well as establish price squeeze tests).
  However, until the implementation of a suitable cost accounting system, the CMT will continue to apply a retail-minus methodology (this refers to retail prices minus a percentage that, in theory, fixes the margin between wholesale and retail prices);
- the fixed call termination market (market 9). It must comply with the following:
  access requirements;
  cost-orientation;
  accounting separation;
  transparency; and
  non-discrimination.
  26 other operators have also been designated as having SMP in fixed call termination. These include Auna Telecomunicaciones, BT España Servicios Globales de Telecomunicaciones (British Telekom), Colt Telecom España (Colt), Vodafone España, Mci Worldcom (Spain) and Tiscali Telecommunications. These are subject to access requirements and the requirement to offer reasonable pricing, but not TESAU's other obligations.
- the transit services in the fixed public telephone network (market 10), based on the following:
  market share;
  legal and structural barriers to entry;
  countervailing buyer power;
  vertical integration;
  The CMT requires TESAU to comply with the following:
  to offer all operators transit services at regulated prices;
  access requirements;
  cost-orientation;
  accounting separation for access and INX activities;
  non-discrimination;
  transparency obligations and reference offer obligations, in relation to wholesale transit services only.

The CMT's decision concerning mobile markets is of particular interest. The mobile market in Spain has been characterised by:

Three mobile network operators (Telefónica Móviles (TME), Vodafone and Amena).
A number of MVNOs licensed by CMT but unable to agree network access agreements with the network operators.

Following its review of the market for access and call origination on public mobile networks (market 15), CMT concluded that the three mobile network operators held a position of collective dominance in the market, for the following reasons:

Number of competitors.
Degree of concentration.
Lack of potential competition.
Market transparency.
Absolute barrier to entry.
Stable and growing demand.
Frequent interaction among competitors.
Homogeneous product.
Retaliation strategy of granting access to other operators in response to any deviation from a common line of action.
Incentives to co-ordinate.
Stability of dominant position.

Although the Commission questioned the CMT's findings and requested additional information on the position with MVNOs and Xfera (the fourth UMTS licensed operator, which has yet to launch any service), the CMT demonstrated that the mobile operators had a common interest in preventing entry of MVNOs onto the Spanish market, as further competition in the retail mobile market could lead to price cuts and a decrease in profits.

The CMT therefore imposed a requirement on the three mobile network operators to grant MVNOs access to their networks. The Commission has nevertheless recommended that CMT closely monitor the development of this market, in particular, the impact of Xfera's possible entry in 2006, and the sustainability of joint dominance by the mobile operators.

The three network operators have SMP in mobile voice termination (market 16), based on market shares, barriers to entry and buying power. Following the Commission's prompting, they are subject to price controls and other requirements, not only on mobile-to-mobile termination but regardless of the origin of the call.

Finally, in relation to broadcasting transmission services (market 18), CMT has found that Abertis Telecom has SMP (based on a market share of 91.48% in 2004 (although now over 85%), control of infrastructure that is not easily duplicated, and buyer power). It is subject to the following requirements:

To provide access following a reasonable request.
A prohibition on non-discrimination.
Transparency obligations.
Control price mechanisms.

Italy

Status of reviews. The Italian Communications Authority (Autorità per le Garanzie nelle Comunicazioni) (AGCOM), the Italian NRA, began the process of market reviews in early 2004 but has only issued final resolutions for half of the 18 recommended markets (markets 1, 2, 7, 11, 12, 13, 14, 15 and 16). However, the process of public consultation has been completed in relation to all markets, and final decisions are expected by the end of 2006 (following the Commission's comments). As with other countries, review of the market for international roaming (market 17) is likely to be delayed pending the Commission's review of the regulatory framework (see below, The Commission's review of the market review procedure).

The AGCOM followed the SMP Guidelines and Recommendation when defining the relevant markets, except in relation to call origination on mobile networks (market 15). For this market, the AGCOM took the view that call origination from mobile networks to non-geographic numbers should not be included in the broader market for mobile access and call origination, but considered as distinct because it had different competitive dynamics. The Commission has made no objections to this finding and the AGCOM has adopted it.

Competitive markets. The market for wholesale mobile access and call origination is competitive (market 15).

Findings of SMP. Telecom Italia, the former incumbent, has SMP in the following:

Retail markets for access to the fixed network for residential and business customers (markets 1 and 2). It is subject to price cap controls and requirements to publish tariff information.
Wholesale markets for:
- access to the local loop (although only in relation to the copper wire) (market 11), where it must:
  publish a reference offer; and
  comply with regulatory accounting requirements.
- broadband access (market 12), where it must supply interconnection at different levels; and
- terminating segments of leased lines and trunk segments (markets 13 and 14), where it must:
  publish a reference offer;
  comply with transparency requirements; and
  comply with non-discrimination requirements.

Based on the AGCOM's draft resolutions, it is likely that Telecom Italia will be deemed an SMP operator on all other markets, except for mobile markets (markets 15, 16 and 17) and the broadcasting transmission services market (market 18).

In relation to the mobile markets, the AGCOM has identified, in its review of the call termination market (market 16), four sub-markets corresponding to each of the networks operated by TIM, Vodafone, Wind and H3G. All of these operators have SMP and are subject to ex ante obligations. In particular, TIM, Vodafone and Wind are all subject to the following:

Price caps in relation to their tariffs for access and interconnection. The price cap applicable to TIM and Vodafone for termination on their mobile networks as of 1 July 2006 will be EUR0.11 (about US$0.14) per minute. The price cap applicable to Wind as of 1 July 2006 will be EUR0.13 (about US$0.16) per minute. Termination tariffs will be reduced according to a formula linked to the reduction of the consumer price index.
Requirements to comply with transparency obligations.
Requirements to establish and maintain cost accounting systems based on incremental costs.

H3G, as a recent entrant, is not yet bound by any price cap controls although it must comply with certain transparency obligations.

The Commission's review of the market review procedure

As has been seen, except for some limited withdrawal of regulation in retail markets, the Regulatory Framework has resulted in more regulation, particularly for fixed wholesale markets, while in the mobile markets, operators have generally been required to further reduce termination rates and, in many cases, publish a reference offer.

It is clear that the market analysis process has proved much more resource intensive for both regulators and industry than was foreseen when the Regulatory Framework was developed. The delay in completing the reviews means that the pre-existing regulatory obligations from the old framework continue to apply as transitional measures until the market analyses are completed, causing uncertainty for market participants as to the effects of potential new regulation in the future.

The Commission is currently reviewing the Regulatory Framework including the market review procedure and the list of recommended markets. In relation to the latter the Commission is consulting on the following issues:

The Article 7 procedure under the Electronic Communications Framework Directive. In relation to this procedure (under which NRAs notify the Commission the results of their market analyses) (see above, Status of market reviews) the Commission has issued proposals outlining measures to simplify the notification system in order to reduce the administrative burden on NRAs (COM(2006)334).
Deadlines for launching and finalising market reviews, to avoid a repetition of the delays experienced for the market reviews carried out to date.
Extending the Commission's veto powers to cover remedies imposed by the NRAs, in order to ensure regulatory consistency across the EU.

In addition, the Commission has issued a new draft Electronic Products Market Recommendation that reduces the number of markets susceptible to ex ante regulation from 18 to 12 (SEC(2006)837). In particular, it proposes:

Only one retail market: access to the public telephone network at a fixed location for residential and non-residential customers.
At the wholesale level, the market for transit services in the fixed public telephone network provided at a fixed location (market 9) to be removed, and two new markets to be provided:
- for call termination on individual public telephone networks provided at a fixed location; and
- for voice call and SMS termination on individual mobile networks.
No ex ante regulation of emerging markets even where there is a first mover advantage (advantage gained by being the first company into a new market).

It is anticipated that draft legislative proposals will be introduced to amend the Regulatory Framework by the end of 2006. At the same time, a revised version of the Recommendation will be published. The revised framework is expected to be implemented by member states in 2009 to 2010.

*The authors would like to thank Salvador Rodriquez Artacho of Cuatrecasas and Salvatore Lamarca of Macchi di Cellere Gangemi for their assistance with the chapter.

Commission vetoes

More than 450 measures have been notified to the Commission, but only a handful have been vetoed. These include:

Germany. This veto related to proposed measures for the market for call termination on individual public telephone networks provided at a fixed location (market 9) (C(2005)1442 final of 17 May 2005, case DE/2005/0144). The Federal Network Agency (Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen) (FNA) found that only the incumbent operator, Deutsche Telekom (DT), was dominant on its individual network in this market, despite the fact that each alternative network operator had a market share of 100% on their individual networks. This was because the FNA considered that the power on the part of these alternative operators was limited by the purchasing power of DT. On the basis of legal and economic considerations, the Commission considered that DT could not exercise this power. The NRA subsequently filed an amended notification.
Finland. The Commission has vetoed proposed measures on two occasions:
- in the market for international calls (for taking into account the effect of existing regulation and for failure to provide sufficient evidence of effective competition) (Case FIN/2003/0024);
- in the mobile access market (for failure to consider factors other than market share to determine dominance) (Case FIN/2004/0082).
Austria. The Commission also vetoed a decision by the NRA in relation to transit services (for its incorrect assumption that alternative operators' self-providing transit services meant they could provide transit services on a commercial basis) (Case AT/2004/0090).

The Commission is proposing to widen its powers of veto to cover the remedies proposed by NRAs. If this proposal is implemented, more vetoes are likely in the future, particularly in relation to price controls.

End of Document

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Law stated as at 01-May-2006

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