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.
Transposition
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.
Market analyses process
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.
Retail markets
(a) Fixed telephony
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.
(b) Voice over Internet Protocol (VoIP)
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.
(c) Leased lines
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.
Wholesale fixed markets: towards more or less regulation?
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.
Mobile markets
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.
Use of veto by Commission
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.
Appeal against 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.
Appeals against NRA's decisions
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.
New Member States
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).
Review of the recommendation on relevant markets
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.
