EUROPEAN COMMISSION. Commission Decision concerning Case FR/2015/1792: Wholesale market for terrestrial television transmission services in France

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1 EUROPEAN COMMISSION Brussels, C(2015) 8485 final Autorité de régulation des communications électroniques et des postes (ARCEP) 7, square Max Hymans F Paris Cedex 15 France For the attention of: Mr. Sébastien Soriano Président Dear Mr Soriano, Fax: Subject: Commission Decision concerning Case FR/2015/1792: Wholesale market for terrestrial television transmission services in France Comments pursuant to Article 7(3) of Directive 2002/21/EC 1. PROCEDURE On 26 October 2015, the Commission registered a notification from the French regulatory authority, Autorité de régulation des communications électroniques et des postes (ARCEP) 1, concerning the wholesale market for terrestrial television transmission services 2 in France. Two national consultations 3 ran, respectively, from 5 December 2014 to 31 January 2015 and from 12 June to 15 July Under Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, , p. 33, as amended by Directive 2009/140/EC, OJ L 337, , p. 37, and Regulation (EC) No 544/2009, OJ L 167, , p. 12 Corresponding to Market 18 of Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with the Framework Directive, OJ L 114, , p. 45. This market has been removed from the list of the relevant markets that may warrant ex ante regulation which is contained in the currently applicable Commission Recommendation 2014/710/EU of 9 October 2014 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (Recommendation on Relevant Markets), OJ L 295, , p. 79. In accordance with Article 6 of the Framework Directive. Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 On 6 November 2015, a request for information 4 was sent to ARCEP and a response was received on 12 November Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs), the Body of European Regulators for Electronic Communications (BEREC) and the Commission may make comments on notified draft measures to the NRA concerned. 2. DESCRIPTION OF THE DRAFT MEASURE 2.1. Background The third review of this market was notified to and assessed by the Commission under case FR/2012/ As in the previous two rounds, ARCEP considered that there were two distinct markets for terrestrial television broadcasting transmission services: a wholesale downstream market 6 and a wholesale upstream market 7. ARCEP excluded from the market definition broadcasting transmission services for digital radio, analogue FM radio and personal mobile TV, as well as broadcasting services provided over satellite, cable, ADSL and fibre networks. ARCEP considered the geographical scope of the market to be national, i.e. including France's overseas territories 8. ARCEP found that only the upstream market for digital terrestrial broadcasting transmission services (DTT) was fulfilling the three criteria test and designated TéléDiffusion de France (TDF) as having significant market power (SMP) on this market. ARCEP differentiated between TDF s replicable and non-replicable sites and imposed, for all sites, a set of remedies on TDF including access, nondiscrimination, accounting separation, cost accounting, transparency and price control obligations. Strict cost-orientation was only imposed for the non-replicable sites. For replicable sites, ARCEP prohibited, on the one hand, excessive and eviction tariffs for the not yet replicated sites, and, on the other hand, eviction tariffs for sites already replicated by alternative operators. In its comments letter, the Commission asked ARCEP to analyse more in depth, in its final measure, the competitive conditions in the overseas territories and to reassess the appropriateness of proposed remedies (in particular the need for costorientation) in these territories. It also called on ARCEP to use additional criteria in its assessment of replicability of sites, taking into account not only the physical aspects but also key economic aspects In accordance with Article 5(2) of the Framework Directive. C(2012) Corresponding to the market on which the broadcasters provide their broadcast offers to editors or to multiplex operators. A multiplex is a group of channels that use the same radio frequency. Each multiplex is managed by a multiplex operator. Corresponding to the market on which access is granted to alternative broadcasters to the infrastructure (pillars and antennae, in particular) of the incumbent broadcaster and to the use of the broadcasting infrastructure including the antenna (DiffHF-TNT). ARCEP considered that, in the context of broadcasting services, the retail market corresponds to the TV offers delivered by editors and distributors to the general public. I.e. Martinique, Guadeloupe, French Guyana, La Réunion, Saint-Pierre-et-Miquelon, Mayotte, Saint- Barthélemy, and Saint-Martin. 2

3 2.2. Market definition Similarly to its previous market analysis, ARCEP defines both a wholesale market for TV broadcasting services offered to multiplexes (downstream market) and a wholesale market for broadcasting services offered to other broadcasting service providers (upstream market). ARCEP confirms its previous finding that the downstream market is evolving towards effective competition and confines its analysis to the upstream market only. ARCEP concludes that broadcasting transmission services provided over alternative platforms such as satellite, cable, ADSL and fibre, cannot yet be seen as substitutes of DTT and should not be included in the market definition, for a number of reasons. Firstly, the regulator emphasises that although alternative platforms such as ADSL and fibre are being increasingly used, the terrestrial platform still is and will remain up to the consumers' preferred option for accessing TV content 9. Secondly, ARCEP points out that DTT covers over 95% of the population, while ADSL, fibre and cable cover only 72%, 15% and 31% of the population, respectively. Thirdly, ARCEP highlights that, contrary to other platforms, access to DTT is free for consumers. Fourthly, ARCEP believes that TV channels, which rely heavily on the income generated through advertisements (and not on fees paid by the final user), will continue to broadcast their programmes mainly via DTT due to its higher coverage to comply with the coverage conditions mandated by the CSA 10. Additionally, DTT market turnover is expected to decrease; following the transfer of the 700 MHz band to mobile phone frequencies DTT will have to face, in 2017, a reduction in the number of metropolitan multiplexes (from 8 to 6). As in previous market reviews, ARCEP considers the geographical scope of the market to be national, i.e. including France's overseas territories The three criteria test As the wholesale market for terrestrial television transmission services is no longer listed in the Recommendation on Relevant Markets, ARCEP carries out the three criteria test with regard to the upstream wholesale market and concludes that the latter is still susceptible to ex ante regulation ARCEP's 2014 data shows that 59% of households were equipped with a TV set. In terms of time of TV consumption, French households watched TV primarily via terrestrial television (39%), followed by ADSL (33%), satellite (19%) and cable (7%). While DTT use has decreased from 49.9% (Q4 2011) to 39% (Q4 2014), ARCEP considers that this downward trend will slow down in the short term, thus suggesting that DTT would continue to be used significantly in the time period under consideration (ARCEP explains that the strong downward trend will pick up again in the medium term, when fibre networks are deployed more extensively in France). ARCEP also points out that in 2014 DTT was the sole TV reception means for 30% of French households. As set out in the conditions set by the Conseil Supérieur de l'audiovisuel (CSA), which allocates the available spectrum, a channel applying for a DTT broadcast license must commit to cover at least 95% of the French population until Also, CSA's 2007 regulatory decisions imply that: i) historical channels broadcasting unencrypted analogue TV should cover 91% of the population in each department, and (ii) other DTT free channels should cover 85% in each department. Also, in 2008 CSA defined 1626 zones to be covered. These zones are split in a "principal network" (composed of the most important metropolitan zones (around 130) and allowing to cover 85% of the population), and a secondary network (composed of smaller zones covering 12% of the population). This distinction is not valid for the overseas territories. 3

4 The first criterion: high and non-transitory barriers to entry ARCEP finds that the high and non-transitory entry barriers that were identified in the previous market analyses are still in place and will not be overcome in the timeframe of the market review. Despite the increase in number of TDF's sites replicated during the last cycle 11, an important share of sites remain non-replicable 12 due to, inter alia, the existence of economic and natural constraints, as well as administrative, technical, public health and environmental requirements. Furthermore, the possibility of developing alternative sites is severely restricted by the fact that new entrants must install their sites very close to the existing TDF sites that they are replicating 13. The presence of these multiple barriers makes it difficult for alternative operators and potential new entrants to develop a network which is comparable to the one owned by the incumbent The second criterion: no tendency towards effective competition ARCEP highlights that competition in the market remains limited, despite the increased replication efforts by alternative operators during the past cycle. In the upstream wholesale market, with the exception of a very limited number of sites (less than 1%), TDF remains the only provider of access to core broadcasting infrastructure (pillars and antennae). As TDF still owns 79% of the total number of pillars and 71% of the total number of antennae, alternative operators' replication efforts (only 27% of sites have been fully replicated) are still insufficient to compete with TDF's nationwide network. Although the strategies put in place by multiplexes when publishing their calls for services on the wholesale downstream market have the potential to stimulate increased infrastructure competition in the upstream market, ARCEP believes that the role played by multiplexes will not be sufficient to guarantee, absent ex-ante regulation, an effective and durable competition in the upstream market in the upcoming regulatory period. ARCEP notes that absent regulation, TDF would be tempted to refuse access to its sites, in which case competition would only rely on the construction of new alternative sites, which currently serve only around 18% of DTT points of service. Moreover, as explained above, ARCEP considers that the competition from other platforms will remain limited at least until the forthcoming regulatory period. This consideration is based on the following observations: (i) the other diffusion means do not allow TV channels to fulfil the CSA's coverage criteria, (ii) DTT will remain the main means for TV access, (iii) DTT is free, (iv) DTT's economic importance for free channels financed by advertisements. In conclusion, ARCEP believes that the second criterion is still met. By acknowledging the rapid and important developments which characterise the market, ARCEP does not exclude the Alternative operators increased their footprint in mainland France: the number of antennae (hosted on TDF s sites) and pillars has increased, respectively, by around 90 and 180 as compared to Q This brings the number of fully replicated metropolitan sites to 433 out of 1626 (i.e. 27%), only 23 of which in the principal network. There was no site replication in the overseas territories. These 78 sites generate around 50% of the total broadcasting income from multiplexes and represent, therefore, an important competitive issue for the sector. In order to foster adoption of DTT by end-users and the switch-over from analogue to digital transmission, the CSA has established coverage specifications, which aim at reproducing the previous analogue footprint built upon TDF's historical network. 4

5 possibility of reviewing the market prior to the end of the regulatory period should platform competition further develop The third criterion: insufficiency of competition law alone ARCEP concludes that ex-post regulation alone is not sufficient to ensure the development of durable competition in the market. This position is also shared by the French competition authority. ARCEP explains, inter alia, that the timeframe of the investigation needed by the competition authority is too long to address potential competition issues (caused, for example, by the incumbent's application of eviction prices) Finding of significant market power ARCEP intends to continue designating TDF as having SMP in the relevant market. The main criteria considered by ARCEP when reaching its conclusion on SMP include: market shares, control of a non-replicable or difficult to duplicate infrastructure, size and vertical integration, and economies of scale and scope Regulatory remedies ARCEP proposes to impose on TDF the following obligations: (i) access to its network elements and associated facilities 15, (ii) non-discrimination; (iii) transparency, including the publication of a reference offer, (iv) cost accounting and accounting separation; (v) and price control. ARCEP s proposed regulation aims at insuring the transition towards the full deregulation of the market in due course. ARCEP believes that only full infrastructure competition, i.e. the building of new alternative sites, should be encouraged. In this respect, ARCEP notes that promoting partial infrastructure competition does not necessarily constitute a step to the development of a fully competitive market. This is confirmed by the fact that only one of TDF s sites hosting an alternative operator s antenna was replicated between Q and the end of Moreover, given the decreasing trend in the DTT's market share compared to other platforms, operators new sites can allow operators to generate revenues also via other markets, such as the provision of wholesale services for radio broadcasting and mobile. The main changes in the proposed remedies, compared to the previous cycle are: The removal of the obligation for TDF to host antennae of alternative operators on its pillars, as this practice is believed to be inefficient (the antenna hosting agreements already in place will be maintained, however). The obligation for TDF to allow alternative operators to install their broadcasting equipment on TDF's antennae (DiffHF-TNT) is maintained. TDF will no longer be obliged to publish its reference offer for access to replicable sites where alternative broadcasters installed their own antennae, to avoid them having a competitive advantage from knowing TDF s ARCEP adds, however, that the competition authority's increased knowledge of the market might, in due course, enable it to detect more promptly anti-competitive practices by the incumbent. Including, in particular, access and collocation on TDF's pillars, within TDF's buildings and outdoors, and broadcasting via TDF's antennas (DiffHF-TNT'). 5

6 wholesale prices. The price control obligation, based on a bottom up cost model 16, will continue to be differentiated depending on the type of site: (i) costorientation for the non-replicable sites 17, (ii) prohibition to set predatory and excessive tariffs 18 for the sites which are "replicable and non-replicated", and (iii) prohibition to set predatory prices for the replicated sites. The tariffs are not notified since the final value of the cost of capital is being consulted upon in parallel in a separate procedure. The Commission could not therefore assess these elements as a part of the current review. Increased flexibility for alternative operators in the contractual rules regarding duration and early termination for access provided by TDF, to incentivise site replication. In response to the request for information, ARCEP has provided a letter by TDF proposing a set of voluntary commitments 19 which the Commission understands are acceptable to ARCEP and will be included in ARCEP's final measure. ARCEP considers that the same remedies should be applied in the overseas territories because, despite a higher penetration of satellite, audio-visual frequencies are attributed, regulated and exploited in the same way as in metropolitan France and DTT remains an unavoidable platform. 3. COMMENTS The Commission has examined the notification and the additional information provided by ARCEP and has the following comments: 20 Evolution of the market in terms of inter-platform competition ARCEP explains that, at least over the next review cycle, DTT will remain an essential and unavoidable platform for TV channels. ARCEP argues that alternative platforms such as ADSL, fibre and satellite are not yet able to match DTT's The costs of TDF's network are taken into account for setting access price to the non-replicable sites while the costs of an optimized or efficient network (used to provide several services, i.e. DTT broadcasting, radio broadcasting, bundle of services) is used for setting access tariffs to the replicable sites (make or buy signals). The criteria used for the determination of non-replicable sites remain similar to the ones used in the previous analysis, i.e. i) height of the existing antenna (now brought up to 100m from 50m) and ii) difficult access or exceptional location of the site, as ARCEP explains that including an additional criterion based on the operator's business plan for a specific site would be based on a high number of parameters which are difficult to forecast. Moreover, the previous list of non-replicable sites proves to be quite precise as only a few of the sites listed as non-replicable have been replicated. ARCEP has reviewed the parameters used for the determination of predatory and excessive pricing. Predatory price ceilings were thus lowered to secure alternative operators investments (instead of the current rules aiming at the creation of an economic space). To avoid excessive pricing, TDF will be required to justify any increase in its tariffs (instead of the current remedy which allows increasing tariffs by up to 15%). The commitments would allow alternative operators to terminate every year, ahead of their foreseen conclusion, 5% of their contracts with TDF (by value). The penalties for early termination of contracts have also been significantly reduced. In accordance with Article 7(3) of the Framework Directive. 6

7 performance in terms of use by the public, population coverage, price and economic benefits for TV channels. ARCEP also concludes that alternative operators still face barriers preventing them from building a nation-wide network able to effectively compete with the incumbent's, despite a steadily increasing presence in metropolitan France. Also, the competitive conditions in the wholesale upstream market for terrestrial television broadcasting remain favourable to TDF, with alternative operators having fully replicated only 27% of the incumbent's sites. The difficulty for alternative operators to compete with TDF is exacerbated by the fact that the sites which are deemed to be non-replicable generate around 50% of the market's turnover and cover an important share of the population, according to ARCEP. The Commission notes, however, that DTT is already a declining market facing growing competition by alternative platforms such as ADSL and fibre. The increased penetration of TV provided over the internet through ADSL and fibre is expected, in due course, to reach a high coverage allowing TV channels not to have to rely on DTT in order to meet the population coverage requirements set by the CSA. Against this background, the Commission welcomes ARCEP s effort to reduce the regulatory burden in the upcoming cycle, with a view to fully deregulate the market in due course. The Commission thus encourages ARCEP, in line with the regulator s own plans, to review the market ahead of the end of the three-year period, should the evolution of the above market trends lead to a change in the competitive conditions earlier than foreseen. Inclusion of all technical details in a notified draft measure ARCEP explains that the cost oriented tariffs applicable for access provided at nonreplicable sites have not been included in the measure notified to the European Commission due to the fact that ARCEP is currently consulting upon the applicable level of the cost of capital, an indispensable parameter for the calculation of the tariffs, in a separate proceeding. The Commission notes that ARCEP has already proceeded in this way in the context of its 2012 notification. Additionally, ARCEP clarified in its response to the request for information that the details of the increased flexibility for alternative operators in the contractual rules regarding duration and early termination for access provided by TDF were not included in the measure notified to the Commission. The Commission understands that a series of voluntary commitments already proposed by TDF could be accepted by ARCEP. While taking note that both elements will be annexed to the final measure, the Commission invites ARCEP, in order to ensure legal certainty and clarity, to notify in future all constitutive elements of a draft measure with a view to allowing the Commission to make its assessment on the basis of all relevant information. Pursuant to Article 7(7) of the Framework Directive, ARCEP shall take the utmost account of the comments of other NRAs, BEREC and the Commission and may adopt the resulting draft measure; where it does so, shall communicate it to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. 7

8 Pursuant to Point 15 of Recommendation 2008/850/EC 21 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 22 within three working days following receipt whether you consider that, in accordance with EU and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication. 23 You should give reasons for any such request. Yours sincerely, For the Commission, Roberto Viola Director-General Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, , p. 23. Your request should be sent either by CNECT-ARTICLE7@ec.europa.eu or by fax: The Commission may inform the public of the result of its assessment before the end of this three-day period. 8