Out-Law News 9 min. read
18 Oct 2005, 2:39 pm
By Philippe Defraigne
There would be many ways of assessing the functioning of the New Regulatory Framework. Starting at the top level, one could assess whether it contributes to the achievement of the Lisbon agenda. Turning to the electronic communications sector, what kind of competition has the New Regulatory Framework promoted: short-term or sustainable? On prices or on quality and product differentiation? Are consumers better off? Has the New Regulatory Framework led to more regulation and if so is it justified?
This article will not attempt to address all those questions but rather to give a helicopter view on some of the major changes in the obligations imposed on operators so far and will help the reader forge an opinion.
A number of new obligations, for instance on mobile number portability or on the procedure for designating the universal service provider, arise directly from the transposition of the New Regulatory Framework without the need for regulators to perform market analyses. Greece is now the only Member State not to have transposed the package of Directives constituting the New Regulatory Framework. This does not suggest that other Member States have done a perfect job. The Commission has opened infringement proceedings against 17 of 25 Member States for non-conformity of national transposition measures.
The proceedings mainly concern the independence of national regulatory authorities, failure to transpose provisions on fixed and mobile number portability, availability of a comprehensive directory and directory enquiry service, designation of the universal service provider, and access to the 112 European emergency call number.
The cornerstone of the New Regulatory Framework is undoubtedly the market analysis procedure defined in Article 7 of the Framework Directive. This implies that most of the obligations falling on incumbent operators (retail price control, publication of a reference interconnection offer, local loop unbundling) are subject to a prior market analysis by the national regulator.
Two years after the entry into force of the New Regulatory Framework on 25th July 2003, the European Commission has received less than half of the market analysis notifications expected under the new framework. Despite a few regulators that are near to completing their analyses of the 18 markets listed by the Commission, nine Member States (Belgium, Cyprus, Czech Republic, Estonia, Italy, Latvia, Luxembourg, Poland and Spain) have not yet submitted a single notification. Another five Member States (Germany, Greece, Lithuania, Malta and the Netherlands) have notified fewer than five markets each.
It is clear that the market analysis process is proving much more resource-intensive for both regulators and industry than was foreseen when the new framework was developed. The delay in completing the reviews causes uncertainty for market participants and means that the regulatory obligations from the former 1998 framework continue to apply as ‘transitional measures’ until the market analyses are completed. In fact, the market reviews were intended to assess whether these obligations are still appropriate and should be maintained, or whether they should be modified or withdrawn.
Regulatory obligations previously imposed on incumbent operators are still largely in place in the nine countries where retail telephony markets have been analysed. The exceptions are Denmark, Finland and Sweden that have concluded that some or all of the retail markets for local/national and international calls from fixed networks for residential and non-residential customers are competitive and should not be subject to ex ante regulation.
The UK has also concluded that the retail market for international calls for non-residential customers is competitive. These are the only examples so far where regulators have found that fixed incumbent operators do not have market power. In all other cases the regulatory obligations imposed on fixed incumbents following the market analyses look much the same as those under the former 1998 framework. Thus one can argue that a lot of effort has been spent analysing markets for the same end result that applied under the previous framework.
The New Regulatory Framework was drawn up in 2000 and adopted in 2002 before the take-off of broadband and VoIP. Three years later, regulators are somewhat struggling to fit VoIP into the New Regulatory Framework. The French approach – supported by the Commission – on the regulation of Voice over Broadband (VoB) services is a good illustration of these difficulties.
ARCEP, the French regulator, defined the retail market for telephony as including VoB services on the ground that these services are substitutable with traditional fixed voice. However, when it comes to imposing obligations on France Télécom, the dominant operator in this market, the regulator decided that the obligations will only apply to traditional voice services and not to VoB.
Under the Universal Service Directive, SMP (Significant Market Power) designation in the retail market for the ‘minimum set’ of leased lines triggers the following obligations: non-discrimination, cost orientation “where appropriate” and transparency. The Hungarian regulator, NHH, is the only regulator so far to have proposed not to impose the cost orientation obligation on the SMP operator, Matáv.
Except for some limited withdrawal of regulation in retail markets (see above), the New Regulatory Framework has clearly lead to more regulation. This is particularly clear for fixed wholesale markets. Wholesale line rental, for example, that was only imposed by three Member States in 2003 (Denmark, Ireland and the UK) has become a standard obligation imposed by national regulators.
(N.B. Wholesale line rental (WLR) is a wholesale service sold by the incumbent operator to enable carrier pre-selection operators to resell the connection to the public network. It allows new entrants to break the billing relationship between the incumbent operator and end-users.)
Stand alone or “naked” DSL, a new remedy somewhat similar to wholesale line rental, enables DSL operators to build broadband services on the basis of bitstream access or line sharing and to sell them to end-users who are not clients of the incumbent operators. Stand alone DSL is already imposed on significant market power operators in countries such as Denmark and Sweden.
The main outcome of the market analysis process for mobile operators has been further reduction in termination rates and in many instances an obligation to publish a reference interconnection offer.
Another threat for mobile operators was a potential obligation to deal with MVNOs (Mobile Virtual Network Operators). So far, only Ireland has imposed such an obligation. Comreg, the Irish regulator, has designated Vodafone and O2 as having, jointly with each other, significant market power in the market for wholesale mobile access and call origination in Ireland. This is the very first case of joint dominance – a relatively new concept of competition law – in the electronic communications sector.
The French regulator, ARCEP, notified a complex proposal to designate all three French mobile operators (Orange, SFR and Bouygues Telecom) as jointly having SMP in the wholesale market for access and call origination on public mobile telephone networks. ARCEP withdrew its notification when the Commission showed signs of vetoing it.
The New Regulatory Framework gives the Commission unprecedented powers to veto national regulators’ decisions on market definitions and SMP designation. A lot of observers were sceptical of whether the Commission would dare to use these powers. The Commission proved it has the political clout to do it and has so far vetoed decisions by regulators in Austria, Finland (twice) and Germany. Furthermore, the French, Irish and UK regulators all decided to withdraw one of their proposed decisions to avoid a Commission veto.
In June 2005 the Austrian regulator, TKK, requested a preliminary ruling by the European Court of Justice on the European Commission veto of TKK’s analysis of the wholesale market for transit services in the fixed public telephone network. This is the first time that an national regulatory authority has referred a decision taken by the Commission under Article 7 of the Framework Directive to the European court.
The court will make a preliminary ruling on the point of law. It is not clear at this stage what the next steps will be. In the meantime, TKK has suspended its analysis of the transit market pending the court’s ruling. The Austrian incumbent operator continues to be subject to the regulatory obligations under the previous 1998 regulatory framework.
The imposition of obligations by regulators at the end of the market analysis procedure is not always the end of the process. Some decisions adopted by the national regulatory authorities under the New Regulatory Framework have already been appealed in Sweden, in Finland, and in the UK. Others are expected to follow: national regulatory authorities’ decisions are systematically appealed in the following Member States: Belgium, Germany, Greece, the Netherlands, Portugal and Sweden. Furthermore, each Member State has different administrative regimes and widely different appeal procedures.
The 10 new Member States had to transpose the New Regulatory Framework by the date of accession: 1st May 2004. All have adopted the necessary national legislation although some issues of non-conformity remain. However, progress by the 10 new Member States in carrying out the market analyses varies considerably. National Regulatory Authorities in the Czech Republic, Cyprus, Estonia, Latvia and Poland are still at the stage of defining relevant markets and collecting market data, and therefore are unlikely to start notifying the results of their market analyses to the Commission before 2006.
National regulatory authorities in Hungary, Malta, Lithuania, Slovakia and Slovenia have started to notify their market analyses findings to the Commission, but only the Hungarian authority has made substantial progress, having completed its analysis of 16 of the 18 relevant markets (markets 1-16). The Hungarian regulator has even started the data collection procedure for its second review of all the markets, which it aims to complete by January 2006.
The quality of the analyses carried out also differs from country to country. In its comments on the six notifications submitted so far by the Slovak regulator (markets 1-2, 8-9, 11 and 16), the Commission repeatedly noted the lack of detail on the implementation and enforcement of the proposed regulatory obligations for operators with significant market power, in particular on price control. The Commission expressed similar concerns about the effectiveness of the proposed regulatory obligations in its comments on the Slovenian notifications (markets 1-2, 11 and 15).
The European Commission recommendation of February 2003 on relevant product and service markets list the markets that are candidates to regulation. The Commission will review the list of relevant markets in 2006. Given the slow progress by regulators in completing the market analyses, and the few examples where markets have been found to be competitive, will there be many changes to the list of 18 markets?
Retail markets could be removed from the list, partly because the Commission is keen to show that it is serious about reducing the level of regulation in the sector and partly because national regulators want to see a reduction of the work load generated by market analysis. Such a withdrawal could be justified by the fact that two markets dealing with access to the fixed telephony network (market 1 and 2) are already regulated by the Directive on Universal Service which, for example, requires undertakings with SMP (fixed only) to offer carrier selection and pre-selection. The absence of barriers to entry in the fixed call markets could justified a removal from the list (see Scandinavian markets).
The market for access and call origination on public mobile telephone networks is another likely candidate for removal. So far only the Irish regulator has reached the conclusion that this market was not competitive.
The new recommendation should also clarify some pending problems. It is, for instance, not clear whether the market for wholesale unbundled access to metallic loops (market 11) covers fibre loops. The German regulators took that view but in its comments on the German notification the Commission stressed that to the extent that fibreglass connections can be used to offer wholesale unbundled access to local loops...for the purpose of providing broadband and voice services, like metallic loops..., they may..., on the basis of specific national circumstances, form part of market 11.
Philippe Defraigne is Director at Cullen International and chairman for ViBevents’ 6th Annual Telecoms Regulation and Competition Law conference taking place at Hotel Le Plaza, Brussels from the 25th to the 28th October 2005.
