Wholesale voice call termination on individual mobile networks. Wholesale SMS termination on individual mobile networks

Transcription

1 Market Review Wholesale voice call termination on individual mobile networks Wholesale SMS termination on individual mobile networks Response to Consultation 06/11 (Response to Public Consultation 03/11) 07 th September 2011 Gibraltar Regulatory Authority Suite 603, Europort Gibraltar Telephone Fax Web:

2 CONTENTS Executive Summary Introduction The EU Regulatory Framework for Electronic Communications Market review methodology Response to Consultation Scope of the review Structure of this document Mobile market structure background Market Definition Methodology The relevant market - Voice call termination market The relevant market - SMS termination market Market Analysis Methodology Assessment of market dominance in voice call termination market Assessment of market dominance in SMS termination Market SMP obligations Competition problems in the wholesale mobile markets Principles in determining SMP obligations SMP obligations in voice call termination market SMP obligations in SMS termination market...40 Annex A Notification of Draft Measures Pursuant to Article 7(3) of Directive 2002/21/EC Annex B List of abbreviations Annex C Minor corrections to Public Consultation 03/ Summary Notification Form... 47

3 Executive Summary A new European regulatory framework for electronic communications networks and services entered into force on 25 July 2003 in the European Union. A reform package was then introduced in November 2009 which paves the way towards strengthening the European electronic communications market by revising rules to ensure more effective competition and better rights for consumers. The basis for the new regulatory framework is a set of five Directives. These five Directives were implemented as part of the Communications Act , Gibraltar, June 2006 (the Act) and accompanying Regulations. The legislation enables the Gibraltar Regulatory Authority (the Authority) to carry out reviews of competition in relevant electronic communications markets to ensure that regulation remains appropriate in the light of changing market conditions, otherwise known as market reviews. In conducting a market review the Authority must take account of the significant market power (SMP) procedures in the Act, sections 38-41, as well as the provisions dealing with co-operation with the European Commission and the regulatory authorities in the Member States, sections This response to consultation should be read in conjunction with the public consultation 03/11 which is published on the Authority s website 2 Section 39 of the Act requires the Authority to take due account of all applicable guidelines and recommendations which have been issued or made by the European Commission in pursuance of the provisions of a European Community instrument. Therefore the Authority should take due account of the European Commission Recommendation 3 (the Recommendation) on relevant markets. This document contains two market reviews: The first concerns wholesale voice call termination on individual mobile networks in Gibraltar. The second concerns wholesale SMS termination on individual mobile networks in Gibraltar. Voice call termination market The Authority s first round of market reviews for mobile termination concluded that there was no good substitute for termination services on mobile networks. The 1 Communications Act 2006, Act No. 15, Commission Recommendation of 17 December 2007 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 communication networks and services (2007/879/EC). 1

4 decision specified that the relevant product market consists of mobile call termination as supplied by a particular Mobile Network Operator (MNO) and that each MNO has a monopoly in the market for mobile termination on its own network. In this regard, two separate markets were identified: Wholesale voice call termination provided by Gibtelecom Ltd. Wholesale voice call termination provided by CTS (Gibraltar) Ltd. The Authority found sufficient evidence to designate Gibtelecom and CTS with SMP in their respective market. Both operators were therefore subject to SMP obligations as per Decision Notice 03/08 4 and Decision Notice 09/09 5. The main obligation takes the form of a glide path to be applied to the wholesale mobile voice call termination rates of Gibtelecom and CTS. Reductions in mobile termination rates (MTRs) applied as from 2009 to 2011 for Gibtelecom and from 2010 to 2011 for CTS. This glidepath obligation for MTRs was determined in conjunction with other regulatory obligations, namely the provision of access, non-discrimination, transparency, and accounting separation. The market analysis carried out in the current review came to the preliminary view that both Gibtelecom and CTS have SMP for termination of calls to end users on their networks. The Authority proposes remedies in a similar manner where appropriate. Nevertheless when the Authority examines the detailed nature of these obligations it needs to be proportionate. Some obligations or some detail of the obligations imposed on Gibtelecom may be too burdensome to impose on CTS (that have a smaller market share of the total mobile market) and so would not be appropriate. The Authority believes that to remedy the identified competition problems in the market the following obligations will be applied on Gibtelecom: Transparency Non-discrimination Accounting separation Access to and use of specific network facilities Price control and cost accounting The following obligations will be applied on CTS: Non-discrimination Access to and use of specific network facilities Price control and cost accounting 4 Wholesale Mobile Markets Decision Notice 03/08. 5 Wholesale Termination Markets Decision Notice 09/09. 2

5 The Authority proposes to continue to apply a price control which would require the SMP operator s termination rates to be in line with the European average. The Authority has paid particular attention to the Commission s Recommendation of 7th May 2009 on the regulatory treatment of fixed and mobile termination rates. The price control proposed applies symmetrically on both operators in the form of a 3 year glide path supported by the MTR benchmark provided by the Body of European Regulators for electronic communications. Table 1: Proposed Wholesale Mobile Termination Rate price control From this date, the maximum MTR shall not exceed MTR price cap (pence per min) Current 7.5 1st January st January st January SMS termination market The Authority s first round of market reviews for SMS termination concluded that there was no good substitute for SMS termination services on mobile networks. The decision specified that the relevant product market consists of mobile SMS termination as supplied by a particular Mobile Network Operator and that each has a monopoly in the market for mobile termination on its own network. In this regard, one separate market was identified: Wholesale SMS termination provided by Gibtelecom Ltd. The Authority found sufficient evidence to designate the sole market player at the time, Gibtelecom, with SMP in their respective market. The operator was then subject to transparency and non-discrimination regulatory obligations. In accordance with the one network, one market principle 6, the Authority proposes to designate Gibtelecom and CTS as having SMP in the SMS termination market in this second round market review. The Authority s view is that a relevant market for SMS termination can be identified and that the geographical extent of the market is Gibraltar. In this regard, two separate markets are now identified: Wholesale SMS termination provided by Gibtelecom Ltd Wholesale SMS termination provided by CTS (Gibraltar) Ltd 6 See page 8, On market reviews under the EU Regulatory Framework: Consolidating the internal market for electronic communications, SEC(2006) 86, COM(2006) 28 Final, 6 February

6 The Authority believes that to remedy the identified competition problems in the market the following obligations will be applied on Gibtelecom: Transparency Non-discrimination The following obligations will be applied on CTS: Non-discrimination On the 11 th May 2011 the Authority issued Public Consultation 03/11 on wholesale voice call termination and wholesale SMS termination on individual mobile networks. The Authority received detailed submissions from the two operators listed below by the close of the consultation period. The detailed responses to the consultation were provided by: CTS (Gibraltar) Ltd; and Gibtelecom. The Authority thanks all respondents for their submissions. Having considered the views of all respondents, the Authority sets out in this document its conclusions regarding the market analysis process including its SMP obligations and subsequent notification to the Commission and other NRA s in accordance with Article 7 of the Framework Directive. 4

7 1 Introduction 1.1 The EU Regulatory Framework for Electronic Communications A new European regulatory framework for electronic communications networks and services entered into force on 25 July 2003 in the European Union. A reform package was then introduced in November 2009 which paves the way towards strengthening the European electronic communications market by revising rules to ensure more effective competition and better rights for consumers. The basis for the new regulatory framework is a set of five Directives: Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (the Framework Directive) 7 Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities (the Access Directive) 8 Directive 2002/20/EC on the authorisation of electronic communications networks and services (the Authorisation Directive) 9 Directive 2002/22/EC on universal service and users' rights relating to electronic communications networks and services (the Universal Service Directive) 10 Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector (the Privacy Directive) 11. These five Directives were implemented as part of the Communications Act and accompanying Regulations. The legislation enables the Gibraltar Regulatory Authority to carry out reviews of competition in relevant electronic communications markets to ensure that regulation remains appropriate in the light of changing market conditions, otherwise known as market reviews. 7 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 [2002] L 108/33. 8 DIRECTIVE 2002/19/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (Access Directive) OJ [2002] L 108/7. 9 DIRECTIVE 2002/20/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on the authorisation of electronic communications networks and services (Authorisation Directive) OJ [2002] L 108/ DIRECTIVE 2002/22/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 March 2002 on universal service and users' rights relating to electronic communications networks and services (Universal Service Directive) OJ [2002] L 108/ DIRECTIVE 2002/58/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 July 2002 concerning the processing of personal data and the protection of privacy in the electronic communications sector (Directive on privacy and electronic communications) OJ [2002] L 201/37. 5

8 1.2 Market review methodology In conducting a market review the Authority must take account of the SMP procedures in the Act, sections 38-41, as well as the provisions dealing with cooperation with the European Commission and the regulatory authorities in the Member States, sections Section 39 of the Act requires the Authority to take due account of all applicable guidelines and recommendations which have been issued or made by the European Commission in pursuance of the provisions of a European Community instrument. Therefore the Authority should take due account of the Recommendation. Once the Authority has defined relevant markets, it shall analyse the state of competition within these markets to determine whether they are effectively competitive or not. Where markets are deemed to be effectively competitive or prospectively effectively competitive within the lifetime of the review, any existing regulation must be withdrawn. Where markets are deemed to be uncompetitive, the Authority must consider appropriate regulatory obligations on any undertaking which has SMP. The main purpose of a market review is to identify the competitive conditions prevailing in a market by assessing systematically the competitive constraints which are faced by undertakings in the market. A market review commences by defining a market, which is then analysed to assess the degree of effective competition in that market. In accordance with European Commission Guidelines 12 (the Guidelines), the market analysis procedure is prospective that is, it must be forward-looking. A market review has three main components: Definition of the relevant market or markets Assessment of competition in each market, in order to identify competitive constraints and assess whether any undertaking has SMP Where market power is identified, consideration of the appropriate SMP obligations in relation to that market. The Authority is following the approach recommended by the European Commission, and has taken account of the various guidelines and recommendations published by the European Commission, as well as the experience of other European NRAs. The Commission Recommendation of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC has been taken into account when deciding which markets will be reviewed. It should be noted that Gibraltar does not have competition legislation. This is important because any SMP 12 Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services (2002/C 165/03) OJ [2002] C 165/6. 6

9 obligations proposed within the communications sector will be regulated only within the sector, there will be no recourse to competition law as there is in other jurisdictions. 1.3 Response to Consultation The Authority shall publish the results of the market reviews and has provided operators the opportunity to comment on the findings in Public Consultation 03/11 prior to adopting the final proposals. Furthermore, prior to adopting the draft measures proposed in the market review, the Authority is notifying the Commission with the findings of the market reviews, the proposed remedies and the outcome of the national consultation process. On 11th May 2011 the Authority issued Public Consultation 03/11 on wholesale voice call termination and wholesale SMS termination on individual mobile networks. The Authority received detailed submissions from the two operators listed below by the close of the consultation period. The detailed responses to the consultation were provided by: CTS (Gibraltar) Ltd; and Gibtelecom. The Authority thanks all respondents for their submissions. Having considered the views of all respondents, the Authority sets out in this document its conclusions regarding the market analysis process including its SMP obligations and subsequent notification to the Commission and other NRA s in accordance with Article 7 of the Framework Directive. 1.4 Scope of the review This market review is concerned with two wholesale markets. These are: voice call termination on individual mobile networks in Gibraltar; SMS termination on individual mobile networks in Gibraltar. 1.5 Structure of this document The rest of the document is structured as follows: Chapter 2 provides an overview of the mobile market structure in Gibraltar. Chapter 3 defines the markets for wholesale voice call termination and SMS termination on individual mobile networks in Gibraltar. It also examines demandside and supply-side substitution both at a retail and wholesale level. Chapter 4 conducts an analysis of the relevant markets for mobile call termination and SMS termination and identifies the operators having significant market power on these markets. 7

10 Chapter 5 sets out the Authority s reasoning on formulating regulation to promote competition in the market for voice call termination and SMS termination on mobile networks. Annex A summarises the consultation questions. Annex B contains a list of abbreviations. Annex C contains minor corrections to Public Consultation 03/11. 8

11 2 Mobile market structure background Gibraltar is a peninsula which shares a land border with Spain and spans a physical area of 6.8km² with a population of approximately 29, as seen below in table 2. It has a total of 32,546 mobile subscribers 14 shared between two mobile network operators (MNOs) in one of the most densely populated areas in the world with over 4000 inhabitants per sq km 15. It has a varied topography with most of its footprint dominated by a rock over 400 metres tall extending from north to south which explains the fact that the mobile incumbent has a total of 38 base stations 16 currently covering the whole of the territory and nearby waters. In Gibraltar there are currently three authorised mobile network operators (MNOs). These are Gibtelecom, CTS (Gibraltar) Ltd and Eazi Telecom Ltd, trading as Eazitel. Gibtel launched a GSM service in 1995 and is wholly owned by Gibtelecom (the incumbent fixed network and services operator). The 50% share in Gibtelecom previously held by USA Communications providers Verizon Communications, was bought by Telekom Slovenije in April 2007 and is now part owner together with the Gibraltar Government. Gibtel offers its services on a GSM 900/1800MHz platform as well as a 3G service to its customers. Other services are offered under Gibtelecom s Gibwireline and Gibconnect brands and include fixed telephony as well as broadband internet services. The second mobile operator CTS obtained their 3G licence in March 2009 and are currently providing 3G services to its customers. The company offered VOIP international calling service years before their recent venture into mobile and did so under the trading name of Ad-Lib Communications. CTS have since begun to expand into offering fixed line services in addition to their mobile telephony services. A third licence was awarded to Eazi Telecom Ltd (Eazitel) in October To date Eazitel have not rolled out their network and do not provide any mobile services. However, they will be rolling out GSM services on the 1800MHz band with a view to expand to 3G services in the near future. Residents of and visitors to Gibraltar can often receive signals from one or more of the Spanish mobile networks. The Spanish operators all offer GSM services on 900/1800MHz as well as 3G services. In parts of Gibraltar signals are also received from the two Moroccan networks, though the effects of these networks are viewed to be peripheral and not considered further in this review. 13 Abstract of Statistics 2009, Government of Gibraltar. 14 Figures provided by both operators to the market review data requests See footnote 14 above. 9

12 The population of Gibraltar and the end users of mobile telephone services comprise four categories: Gibraltarians, UK citizens, daily commuters (largely Spanish) and visitors. These are shown for the years 2008 and 2009 in Table 2. Table 2: Population and visitor numbers to Gibraltar 2008 and 2009 Gibraltarians UK/ British Other Sub-total Visitors per day* Total ,757 3,247 2,282 29,286 27,802 57, ,907 3,129 2,395 29,431 28,206 57,637 Source: Abstract of Statistics 2009, Government of Gibraltar. * Average calculated from total visitors per year (total divided by ) A large fraction of the daily visitors to Gibraltar arrive by land from Spain and the Authority estimates that of these up to 5,000 are in regular employment 17. For those working in Gibraltar and living in Spain they will likely possess a Spanish mobile phone. When entering Gibraltar, these users will likely continue on their Spanish home network instead of roaming on a Gibraltar network. This is due to the high signal strength of the neighbouring Spanish networks which cover most of Gibraltar. Furthermore, the visiting UK/British population who require use of their home mobile phones 18 while in Gibraltar, will have to manually select a local mobile network if they are to remain on this network until they no longer require to do so. If on the other hand automatic network selection (commonly the default option on mobile handsets) is selected, then roaming on a Gibraltar mobile network is not guaranteed. Gibraltar covers an approximate area of 6.8 km² and most of the population resides within 4 km². Although small in area, coverage with a GSM network is challenging because of the topographical nature of Gibraltar and close proximity of Spanish GSM networks. The Gibtelecom network has thirty eight base stations and frequency reuse is limited. Due to the use of 900MHz by the Spanish operators and Gibtel, it was best for the new operators to make use of limited alternative 1800MHz frequencies along with the 3G frequencies. CTS was licensed in the 3G frequency band and as a result now have eight 3G base stations covering Gibraltar. Eazitel was licensed in the 1800MHz frequency band although to date no services have yet been offered. 17 See Table 1 in Employment Survey Report October 2009, Government of Gibraltar Statistics Office. 18 UK registered SIM. 10

13 Figure 1 below illustrates the recent evolution in mobile teledensity in Gibraltar since % Figure 1 Mobile teledensity in Gibraltar 110% 100% 90% 80% 70% 60% Q Q Q Q Q Q Q Q Q Q Q Mobile teledensity in Gibraltar appears to have risen significantly since the conclusion of the first round of market reviews in August A logical explanation for this increase could be the ever-growing popularity of online social networks which people of all ages can now access through 3G or Wifi enabled mobile phones. There also seems to be a cultural trend amongst the younger generation whereby mobile phones are now seen as a necessity rather than a luxury. However, mobile teledensity in Gibraltar is very difficult to assess accurately due to the ownership of Spanish registered mobile phones and to a lesser extent, ownership and use of UK registered mobile phones. In reality mobile teledensity is higher than the figures shown in Figure 3. The total number of mobile subscribers in Gibraltar has been growing steadily in recent years, while the number of fixed subscribers has declined slightly. Figure 2 shows the recent history in the relation between mobile and fixed subscribers. 11

14 Figure 2: Fixed and mobile subscribers in Gibraltar 19 Subscribers 35,000 30,000 25,000 20,000 Mobile Fixed 15,000 10,000 5,000 0 Q Q Q Q Q Q Q Q Q Q Q Figure 2 above shows the progression of telephone communications subscribers in Gibraltar over recent years in both mobile and fixed line subscribers. The graph clearly illustrates a significant growth in mobile subscriber numbers, which would suggest that there is a growing demand for mobile telecommunications services in Gibraltar. The decline in fixed line subscriber numbers may be attributed directly to the increase in mobile subscribers, as this service offers a similar quality product with the added benefit of true portability, a feature which traditional fixed lines inherently lack and is therefore more suited to the modern on the go lifestyle that most users lead today. 19 Source: Gibtelecom and CTS answers to data request. 12

15 3 Market Definition 3.1 Methodology The Authority refers the reader to page 14 of Public Consultation 03/ The relevant market - Voice call termination market The Authority refers the reader to pages of Public Consultation 03/ Market Definition Procedure The Authority refers the reader to pages of Public Consultation 03/ The relevant geographic market A relevant geographical market comprises the area in which the undertakings concerned are involved in the supply and demand of products and/or services, in relation to which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different to those areas. On the basis of this definition, the Authority takes the view that the relevant geographic market for the provision of mobile voice call termination services by individual MNOs is national in scope. Each MNO is considered to be a separate relevant product market for the provision of mobile voice call termination services. The geographic scope of the market then reflects the extent of physical coverage that characterises each MNO. The Authority finally notes that each MNO is licensed on a national basis and offers geographically uniform MTRs. On this basis, the Authority identifies Gibraltar as the relevant geographical market Preliminary Delineation of Mobile Voice Call Termination Markets The Authority refers the reader to page 20 of Public Consultation 03/ Wholesale voice call termination on individual mobile Networks. Wholesale SMS termination on individual mobile networks 21 See footnote 19 above. 22 See footnote 19 above. 23 See footnote 19 above. 13

16 In Public Consultation 03/11 interested parties were asked the following question: Q1: Do you agree with the above preliminary conclusions regarding the wholesale voice call termination market definition exercise? Please give reasons for your answer Views of Respondents Both respondents agreed with the Authority s preliminary conclusions regarding the wholesale voice call termination market definition exercise. Gibtelecom noted that the newly licensed operator Eazitel could start rolling out services and asked whether the Authority would assess the competitive impact on the market and commence a further market review and SMP obligation assessment when it becomes operational. Gibtelecom went on to highlight the effect of foreign operators in Gibraltar. Gibtelecom urged the Authority to place greater emphasis on the competitive constraints on the company due to the inundation of mobile signals from neighbouring mobile operators located in Spain and Morocco. The biggest concern for Gibtelecom is the Spanish operators who flood the geographical area with a mobile signal strong enough to allow its customers to cross into Gibraltar without switching to the Gibraltar operators for roaming services and therefore incurring a loss of income. Gibtelecom also notified the Authority of a complicated pre-registration requirement that customers of at least one Spanish mobile operator must complete before roaming with Gibtelecom. This added further difficulties to roaming within Gibraltar. Gibtelecom briefly touched upon the loss of income from high value customers. These potential customers work in Gibraltar, but live just across the border in Spain where according to Gibtelecom, they find that they no longer require a Gibtelecom mobile contract because the Spanish mobile network reception within Gibraltar is strong enough to allow them to continue to make local rate calls while in Gibraltar. Gibtelecom also disagrees with the Authority in its assessment that the effects of the two Moroccan operators networks are peripheral in nature. They feel that these should be considered further in the public consultation. Gibtelecom also goes further and claims that a segment of the Gibraltar population acquire Moroccan operators SIM cards and use these within Gibraltar in order to make calls to Morocco at local rates thus avoiding roaming charges with Gibtelecom. Gibtelecom also stated that it faces challenging frequency use proficiency and re-use as a direct result of foreign operators mobile signal encroachment. They also quoted the Authority s latest Public Consultation by saying that coverage with a GSM network is challenging because of the topographical nature of Gibraltar and close proximity of four Spanish networks. Also highlighted was pricing, Gibtelecom specifically felt that a demand-side constraint at retail level exists due to pricing information being clearly visible for consumers when comparing Spanish retail prices with those from Gibtelecom. This 14

17 constraint at retail level was said to possibly have an impact on the wholesale market as prices could be constrained back to their original levels. As a result, Gibtelecom believes that there is supply-side substitution at the retail level and that a small but non transitory increase in price in their own mobile service could cause their customers to switch to Spanish operators. They stated that the Authority did not address this in the mobile market review. CTS neither agreed nor disagreed, but discussed transit traffic and believe that this should have been addressed in the market definition due to the presence of a third mobile operator. They also mentioned that the lack of local competition legislation makes the Authority s application of ex-ante regulation of paramount importance. The Authority s position The Authority notes that both respondents agreed with the market definition yet showed concern regarding the potential new market entrant and the Authority s designation of SMP obligations. The Authority is fully aware of the fact that a new mobile entrant could start operating in the market within the lifetime of this review and will be closely monitoring the situation. In accordance with Gibraltar and EU legislation, the Authority will act accordingly if these circumstances were to arise. Regarding Gibtelecom s concerns on foreign operators having a presence in Gibraltar, the Authority acknowledges that the strength of some mobile signals is high in certain areas of Gibraltar and is, therefore, a concern for local operators. However, Gibtelecom have not provided the Authority with any significant details regarding the number of lost customers, their spending patterns and the corresponding loss of income as a direct result of mobile signal encroachment. The Authority also notes that a similar situation may arise when Gibtelecom customers travel across the border into Spain and stay within approximately a 5 to 10km radius. Customers who manually select Gibtelecom as their home network, may continue to use the service as normal, as long as they remain in close proximity to Gibraltar. Regarding Gibtelecom s claim that a segment of the Gibraltarian population acquire Moroccan operators SIM cards in order to avoid roaming charges to make calls from within Gibraltar, the Authority still believes that this is a very small segment of the population and the potential lost revenue could be minimal. Gibtelecom has not provided any details on the potential loss of income or the constraints it faces due to not being able to acquire these customers. The Authority also acknowledges Gibtelecom s challenging frequency use proficiency and re-use as a direct result of foreign operators mobile signal strength yet these issues are unlikely to affect Gibtelecom s position of dominance in this market. Gibtelecom have not provided any detailed evidence of how this issue affects the mobile voice call termination market definition exercise. Regarding the impact of constraints at the retail level, the Authority is aware that the wholesale market is directly derived from the demand on the underlying retail market. However, as call termination is only provided and/or demanded by network 15

18 operators and not by retail customers, it concerns a wholesale service or product market. This analysis shall therefore only focus on the wholesale level. 3.3 The relevant market - SMS termination market The European Commission did not recommend a separate termination market for SMS messages in the Recommendation. However, the French and the Polish NRAs (ARCEP and UKE respectively) presented before the Commission reasons why this market should be defined separately 24, and the Commission accepted their reasoning. Since SMS uses the same mobile network equipment as mobile voice calls 25, the Authority considers the cost of wholesale SMS services to be inherently linked to the cost of wholesale mobile voice call services. The reasons put forward to support the conclusion that, as regards mobile voice call services, the relevant markets are wholesale mobile voice call termination on each MNO's network, should therefore carry equal weight as regards wholesale SMS termination Market Definition Procedure The Authority refers the reader to pages of Public Consultation 03/ The relevant geographic market A relevant geographical market comprises the area in which the undertakings concerned are involved in the supply and demand of products and/or services, in relation to which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different to those areas. On the basis of this definition, the Authority takes the view that the relevant geographic market for the provision of mobile SMS termination services by individual MNOs is national in scope. Each MNO is considered to be a separate relevant product market for the provision of mobile voice call termination services. The geographic scope of the market then reflects the extent of physical coverage that characterises each MNO. The Authority finally notes that each MNO is licensed on a national basis. On this basis, the Authority identifies Gibraltar as the relevant geographical market. 24 ARCEP: Decision n on the definition of wholesale market for SMS termination on public mobile telephone networks, SMP designation and SMP obligations (2006, 1st market review) and Decision n on the definition of wholesale market for SMS termination on public mobile telephone networks, SMP designation and SMP obligations (2010, 2nd market review) UKE : Decision on SMS regulation dated 14th December SMS services use the same transmission and switching equipment as voice services. Customers database HLR (Home Location Register) and VLR (Visitor Location Register) are also used by both services. Moreover SMS services use specific equipment managing the storage and sending of SMS (Short Message Service Center). 26 See footnote 19 above. 16

19 3.3.3 Preliminary Delineation of SMS Termination Markets There are currently no viable competitive substitutes at the wholesale level for the termination of SMS s by individual MNOs, whether measured from the supply-side or the demand-side. In respect of the analysis presented above, and in accordance with competition law principles, the Authority identifies wholesale SMS s on individual mobile networks as relevant for the purposes of ex ante regulation. On this basis, the Authority identifies two wholesale SMS termination markets in Gibraltar: Wholesale SMS termination provided by Gibtelecom. Wholesale SMS termination provided by CTS. In Public Consultation 03/11 interested parties were asked the following question: Q2: Do you agree with the above preliminary conclusions regarding the wholesale SMS termination market definition exercise? Please give reasons for your answer Views of Respondents Both respondents agreed with the Authority s preliminary conclusions regarding the wholesale SMS termination market definition exercise. CTS agreed with the Authority s preliminary conclusions regarding the wholesale SMS termination. However, it stressed the importance of taking into consideration the costs involved when terminating an SMS that arrives from an SMS hub and when the Authority sets price controls. CTS quoted the Authority by stating that each MNO holds 100 per cent market share on termination over its network and they asked for this same logic to be applied to the potential new market entrant to avoid abusive termination rates. Gibtelecom reiterated its concerns regarding the effects of foreign operators on the local mobile market. They highlighted the same points as mentioned under question 1 including the loss of income due to foreign mobile signals penetrating the territory of Gibraltar and the effect of foreign operator pricing on the Gibraltar market. The Authority s position The Authority acknowledges CTS s point regarding the possible use of a third party hub for the sending and receiving of SMS s and has factored this in when considering the structure and imposition of price controls. The Authority also notes that direct SMS interconnection is offered by Gibtelecom in its Reference Interconnection Offer. When considering SMP obligations for a new entrant, the Authority is fully aware of the fact that a new mobile entrant could start operating in the market within the lifetime of this review and will be closely monitoring the situation. In accordance with Gibraltar and EU legislation, the Authority will act accordingly if these circumstances were to arise. 17

20 Regarding Gibtelecom s concerns on foreign operators having a presence in Gibraltar, the Authority acknowledges that the strength of some mobile signals is high in certain areas of Gibraltar and is therefore a concern for local operators. However, Gibtelecom have not provided the Authority with any significant details regarding the number of lost customers, their spending patterns and the corresponding loss of income as a direct result of mobile signal encroachment. The Authority also notes that a similar situation may arise when Gibtelecom customers travel across the border into Spain and stay within approximately a 5 to 10km radius. Customers who manually select Gibtelecom as their home network, may continue to use the service as normal, as long as they remain in close proximity to Gibraltar. Regarding Gibtelecom s claim that a segment of the Gibraltarian population acquire Moroccan operators SIM cards in order to avoid roaming charges to make calls from within Gibraltar, the Authority still believes that this is a very small segment of the population and the potential lost revenue could be minimal. Gibtelecom has not provided any details on the potential loss of income or the constraints it faces due to not being able to acquire these customers. The Authority also acknowledges Gibtelecom s challenging frequency use proficiency and re-use as a direct result of foreign operators mobile signal strength yet these issues are unlikely to affect Gibtelecom s position of dominance in this market. Gibtelecom have not provided any detailed evidence of how this issue affects the mobile voice call termination market definition exercise. Regarding the impact of constraints at the retail level, the Authority is aware that the wholesale market is directly derived from the demand on the underlying retail market. However, as call termination is only provided and/or demanded by network operators and not by retail customers, it concerns a wholesale service or product market. This analysis shall therefore only focus on the wholesale level. 18

21 4 Market Analysis 4.1 Methodology The Authority refers the reader to page 25 of Public Consultation 03/ Assessment of market dominance in voice call termination market Market shares The Authority refers the reader to pages of Public Consultation 03/ Barriers to entry The Authority refers the reader to page 26 of Public Consultation 03/ Countervailing buyer power The Authority refers the reader to pages of Public Consultation 03/ Pricing behaviour The Authority refers the reader to pages of Public Consultation 03/ Preliminary conclusion on SMP designation The Authority concludes that each MNO each Gibraltar, namely Gibtelecom and CTS, enjoys significant market power over calls terminated on its own network. This conclusion is based on the following: Each MNO holds 100 per cent market share on termination over its network; Absolute barriers to entry for potential competitors; Lack of sufficient countervailing buyer power with respect to voice call termination; The calling party pays (CPP) principle predominates. In respect of the analysis presented above and in accordance with competition law principles, the Authority is of the view that: 27 See footnote 19 above. 28 See footnote 19 above. 29 See footnote 19 above. 30 See footnote 19 above. 31 See footnote 19 above. 19

22 Gibtelecom should be designated as having SMP in the market for call termination on its mobile network in Gibraltar. CTS should be designated as having SMP in the market for call termination on its mobile network in Gibraltar. In Public Consultation 03/11 interested parties were asked the following question: Q3: Do you agree with the above preliminary conclusions regarding mobile voice call termination market analysis and proposed SMP designations? Please give reasons for your answer Views of Respondents Gibtelecom argued that the Authority should exercise great caution when using benchmarking data from larger European Member States. Gibtelecom urged the Authority to consider the size of Gibtelecom as a company as well as the local market conditions and went on to say that Gibtelecom s wholesale voice call termination prices are lower than those of other small nations which are nonetheless far larger than Gibraltar. Gibtelecom reiterated its concerns regarding the effects of foreign operators on the local mobile market. They highlighted the same points as mentioned under question 1 including the loss of income due to foreign mobile signals penetrating the territory of Gibraltar and the effect of foreign operator pricing on the Gibraltar market. CTS again raised concern over the potential new market entrant and particularly the potential for this new operator to have a negative effect on pricing should the authority not consider the possibility of transit charges. The Authority s position The Authority explained the reasons for opting to use benchmarking figures on which to base the proposed price controls in its Public Consultation. As mentioned previously, the Authority took the utmost account of the Commission s Recommendation on fixed and mobile termination rates 32 which aims to provide greater legal certainty and harmonisation of termination rates across Europe. If NRA s do not have a LRIC cost model based on efficient technologies, they have the option to apply an alternative methodology which yields results which should not exceed the average of the termination rates set by NRAs implementing the recommended cost methodology. As the Authority does not have a LRIC cost model based on Gibtelecom s mobile network, the Authority only had the option of calculating the termination rates through the use of benchmarked reference rates as a proxy for cost orientation. The Authority therefore believes that the results derived from calculating the termination rates through benchmarking will be similar to those calculated when using a LRIC model due to the fact that all LRIC models calculate 32 COMMISSION RECOMMENDATION of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (2009/396/EC). 20

23 termination rates using roughly the same methodology as suggested in the Recommendation. Gibtelecom also added that its termination rate was lower than Malta, Belgium and Bulgaria. The Authority does not dispute this fact, but reiterates that when following the Commission Recommendation it must take into account the EU average and not those countries with the highest termination rates. Moreover, the Authority expects the termination rates of these countries to fall to a reasonable level as soon as they adopt the Recommendation. Regarding the matter of foreign operators, the Authority refers Gibtelecom to the Authority s position for question 1 and 2. In relation to the SMP obligations which would apply to any potential new entrant, the Authority is fully aware of the fact that a new mobile entrant could start operating in the voice call termination market within the lifetime of this review and will be closely monitoring the situation. In accordance with Gibraltar and EU legislation, the Authority will act accordingly if the circumstances were to arise. 4.3 Assessment of market dominance in SMS termination Market Market shares The Authority refers the reader to page 30 of Public Consultation 03/ Barriers to entry The Authority refers the reader to pages of Public Consultation 03/ Countervailing buyer power The Authority refers the reader to page of Public Consultation 03/ Pricing behaviour The Authority refers the reader to pages of Public Consultation 03/ Preliminary conclusion on SMP designation The Authority concludes that each MNO in Gibraltar, namely Gibtelecom and CTS, enjoy significant market power over SMS s terminated on its own network. This conclusion is based on the following: 33 See footnote 19 above. 34 See footnote 19 above. 35 See footnote 19 above. 36 See footnote 19 above. 21

24 Each MNO holds 100 per cent market share on termination over its network; Absolute barriers to entry for potential competitors; Lack of sufficient countervailing buyer power with respect to SMS termination; The calling party pays (CPP) principle predominates. In respect of the analysis presented above, and in accordance with competition law principles, the Authority is of the view that: Gibtelecom should be designated as having SMP in the market for SMS termination on its mobile network in Gibraltar. CTS should be designated as having SMP in the market for SMS termination on its mobile network in Gibraltar. In Public Consultation 03/11 interested parties were asked the following question: Q4: Do you agree with the above preliminary conclusions regarding mobile SMS termination market analysis and proposed SMP designations? Please give reasons for your answer Views of Respondents CTS believe that the assumption of the CPP (Calling Party Pays) principle was incorrect, as with the current arrangement a third party external hub charges a fee for receiving an SMS and forwarding it to any mobile network. CTS believe that the Authority should consider this charge along with connectivity, staff and equipment charges when applying price controls. They also acknowledged the fact that direct mobile interconnection was now available. CTS also stressed the importance of applying the same price controls to the new mobile market entrant. Gibtelecom agreed with the Authority s preliminary conclusions. However they directed the Authority s attention to their comments on the use of benchmarking data under question 3 as well as their comments regarding the effect of foreign operators for question 1 and 2 and 3. The Authority s position The Authority acknowledges CTS s point regarding the possible use of a third party hub for the sending and receiving of SMS s and has factored this in when considering the structure and imposition of price controls. The Authority also notes that direct SMS interconnection is offered by Gibtelecom in its RIO. Once again, the Authority understands Gibtelecom s concerns regarding foreign MNO signals penetrating the territory of Gibraltar allowing their customers to avoid roaming onto Gibtelecom s mobile network resulting in a loss of revenue. The Authority directs Gibtelecom to its position under questions 1, 2 and 3. 22

25 5 SMP obligations 5.1 Competition problems in the wholesale mobile markets The Authority refers the reader to page 34 of Public Consultation 03/ Excessive Pricing The Authority refers the reader to page 34 of Public Consultation 03/ Price Discrimination The Authority refers the reader to pages of Public Consultation 03/ Interconnection on Unreasonable Terms The Authority refers the reader to page 35 of Public Consultation 03/ Principles in determining SMP obligations The Authority refers the reader to page of Public Consultation 03/ SMP obligations in voice call termination market Regulations of the Access Regulations provide guidance on specific SMP obligations that may be applied by the Authority. These are: Transparency Non-discrimination Accounting separation Access to and use of specific network facilities Price control and cost accounting 37 See footnote 19 above. 38 See footnote 19 above. 39 See footnote 19 above. 40 See footnote 19 above. 41 See footnote 19 above. 23

26 5.3.1 SMP obligations proposed for Gibtelecom in voice call termination market a. Transparency obligation The imposition of the transparency obligation on MNOs is to ensure that the access and non-discrimination obligations are observed. The transparency obligation would require MNOs to deliver services of equivalent quality to all operators and that alternative operators have sufficient information and clear processes to which they would not otherwise have access. This would assist their entry into the market and directly targets the nature of such problems. The obligation of transparency already exists and has been enforced on Gibtelecom through the 2008 market review decision 42. The current obligations imposed together with some minor alterations are as follows: 1) Gibtelecom shall make available call termination services and make public the terms and conditions in a Reference Interconnection Offer (RIO). 2) The terms and conditions applicable to call termination services may be subject to amendment and/or direction by the Authority. 3) Gibtelecom shall notify the Authority at least 45 days in advance of changes to terms and conditions (including price increases). 4) Gibtelecom shall notify the Authority at least 30 days in advance for price reductions. 5) Gibtelecom shall publish changes to terms and conditions (including price increases) at least 30 days in advance of implementation. Publication shall include direct notification to all other operators in the market. 6) Gibtelecom shall publish a decrease in tariffs at least 14 days in advance of implementation. Publication shall include direct notification to all other operators in the market. 7) Publication shall include a notice on the company s website. The Authority holds the view that the transparency obligation together with its minor amendments in bold shall be maintained on Gibtelecom. Please note however that obligation 7 has been amended slightly to a less burdensome one by removing the requirement to publish a prominent notice on the company s website and the need to notify the Authority when the notice is published. 42 Decision and SMP Obligations Wholesale Mobile Markets, Decision Notice 03/08. 24