Draft decisions on remedies in the market for the minimum set of leased lines. Contents

Transcription

1 Draft decisions on designating an undertaking with significant market power and imposing specific obligations in the retail markets for the minimum set of leased lines (Market 7) 19. February 2007

2 Contents 0 Summary Introduction and background Legal basis Process for the analysis of the leased lines markets The structure of the document Designation of an undertaking with significant market power Regulatory basis for the choice of remedies Current obligations Possibilities of duplicating infrastructure in the market for the minimum set of leased lines Competition problems General competition problems Specifics on competition problems in the retail market for the minimum set of leased lines Horizontal leveraging Summary of the competition problems General discussion of remedies Proportionality Synergy among remedies Assessment of specific obligations Introduction Access Price and accounting controls Non-discrimination Publication and reference offer General - publication and reference offer Specifics on terms for publication and reference offer Conclusion Accounting separation Accounting separation in general Assessment of an obligation of accounting separation Conclusion Proportionality assessment Assessment of the overall effect of specific obligations Draft decisions on imposing specific obligations Access Price and accounting controls Non-discrimination Publication and reference offer Removal of existing obligations The decision s entry into force and the right to appeal

3 0 Summary On the basis of the analysis of the retail market for the minimum set of leased lines as well as of the notification of decisions, pursuant to Electronic Communications Act 3-3, the Norwegian Post and Telecommunications Authority (NPT) will designate Telenor ASA (hereinafter referred to as Telenor) as an undertaking with significant market power in this market. NPT has identified potential competition problems related to horizontal leveraging of market power at the retail level in the market. In addition, several of the competition problems connected with vertical leveraging and single market dominance that are discussed in the draft decisions for the wholesale leased lines markets (Markets 13 and 14), have an indirect impact in the retail market for the minimum set of leased lines. With regard to vertical leveraging, it is chiefly various forms of discriminatory behaviour that pose the greatest potential competition problems. These include price discrimination, which can put a price squeeze on Telenor s competitors in the retail market, and discrimination related to other factors, which can limit competitors opportunities in the retail market. Of the competition problems connected posed by single market dominance, it is primarily excessive prices and price discrimination in Market 13 that represent relevant competition problems affecting competition in the retail market. Horizontal leveraging of market power relates to the potential competition problems product bundling/tying and cross-subsidisation between the minimum set of leased lines and other electronic communication services that Telenor offers. Telenor controls a nationwide copper network. NPT deems it unlikely that this network will be duplicated in the near future. On the other hand, effective regulation at the wholesale level, especially in Market 13, may facilitate sustainable competition at the retail level, and NPT is of the opinion that the obligations imposed in the related wholesale market will have such an impact in the medium term. This indicates that the market should be regulated on the basis of Principle 3 in NPT s remedies document. In the market for the minimum set of leased lines, most of the remedies are provided directly in the Electronic Communications Act. These are access, a non-discrimination obligation, a cost-orientation obligation and preparing and publishing a reference offer. For this reason these decisions are less detailed in their rationale than those for other relevant markets where the imposition of obligations needs to be considered more with regard to the competition problems identified. Pursuant to Electronic Communications Act 4-12 and Ecom Regulations 2-3 Telenor is obliged to deliver the following types of leased lines: bandwidth for ordinary voice quality based on EN and EN , bandwidth for special voice quality based on EN and EN kbit/s digital based on EN and , 2048 kbit/s digital unstructured based on EN and EN , and 1 In the Ecom Regulations 2-3, second paragraph litra b, EN is listed together with EN and EN This is incorrect, and this section in the regulations will be corrected in compliance with Dir 92/44/EEC and Art 16 in the USO Dir. 3

4 2048 kbit/s digital structured based on EN and EN Pursuant to Electronic Communications Act 4-12 Telenor ASA is obliged to offer the minimum set of leased lines at cost-oriented prices. Telenor is also directed to implement a cost accounting system based on fully allocated historical costs for the minimum set of leased lines. Pursuant to Electronic Communications Act 4-12 Telenor ASA is obliged to offer the minimum set of leased lines on non-discriminatory terms, and to prepare and publish reference offers for the minimum set of leased lines. 1 Introduction and background 1. Under Act No. 83 of 4 July 2003 relating to electronic communications (Electronic Communications Act) 3-2 and 3-3, NPT is obliged to analyse the various markets for electronic communications and identify undertakings with significant market power. If one or more undertakings are designated as having significant market power, at least one specific obligation shall be imposed over and above the general obligations pursuant to the Electronic Communications Act with regulations. In the new regulatory framework, various specific obligations will be imposed on undertakings with significant market power in the markets for electronic communications networks and communications services, based a specific assessment of each individual market and the relevant undertakings positions in this market. In what follows these will be referred to as specific obligations. 2. In its analysis of the market for the minimum set of leased lines (cf. Annex 1) NPT concludes that Telenor has significant market power in this market. 1.1 Legal basis 3. The new regulatory framework for electronic communication is based on five directives adopted by the European Union (EU). The directives entered into force for Norway with effect from 1 November The directives have been implemented in Norwegian law inter alia through the Electronic Communications Act and Regulations of 16 February 2004 on electronic communications networks and services (Ecom Regulations). 4. Up until now, a set of specific obligations has been imposed on the undertakings that in principle have followed directly from Act No. 39 of 23 June 1995 relating to telecommunications (Telecommunications Act) and the Regulation on public telecommunications networks and services (Public Telecommunications Network and Services Regulations), with amendments dated 6 February In accordance with the new regulatory regime, the obligations for undertakings with significant market power will be determined individually. This determination will be take place following a case-by-case assessment in light of a market analysis and with a limited forward-looking time horizon 2, in other words, a more dynamic adaptation than previously. Particular attention must be paid to the expected pro-competitive effect of the relevant remedies. Thus, to a greater extent than previously, obligations are to be tailored to the individual undertaking and the specific competition problems in 2 See further details about the time horizon in the ESA s guidelines for market analyses and assessment of significant market power, paragraph 20. 4

5 evidence in the relevant market. This implies that the assessments will be more extensive than previously. Even so, it does not mean that NPT will necessarily have to settle on a different choice of regulatory obligations from those resulting from previous regulations. 5. In selecting specific obligations, NPT has taken due consideration of the guidelines and principles reported on in NPT s remedies document dated 5 December NPT s remedies document is based on the document Common Position on the approach to Appropriate remedies in the new regulatory framework, drawn up by the European Regulators Group for electronic communications networks and services (ERG). A revised version of this document was approved on May The guidelines and principles embodied in ERG s remedies document are intended to foster the development of the single market for electronic communications networks and services as well as facilitate uniform and harmonised regulatory practice in the various member states. 1.2 Process for the analysis of the leased lines markets 6. A notification of decisions in Market 7 was sent out for consultation along with an updated market analysis on 21 December NPT received responses to the consultation from BaneTele AS (BaneTele), the Norwegian Competition Authority (NCA), TDC Song AS (TDC Song), Tele2 Norge AS (Tele2) and Telenor ASA (Telenor). In light of these comments, NPT is presenting here draft decisions, which designate undertakings with significant market power, impose new specific obligations and remove current ones. Comments on the notification have been taken into account in these draft decisions. These draft decisions have been translated into English and are being notified to the EFTA Surveillance Authority (ESA), cf. Electronic Communications Act 9-3 and Article 7 of the Framework Directive. From the time the notification is approved for registration by ESA, ESA and any other interested parties have one month to comment on the decisions. After evaluating any comments from these parties, NPT will issue final decisions that will be sent to the undertakings immediately. 7. Operators with a legal interest in appealing will be able to appeal the final decision in the ordinary manner, in accordance with the provisions of the Public Administration Act. 1.3 The structure of the document 8. These draft decisions consist of one main document, with the actual obligations imposed and the background and reasons for them, and two annexes. Annex 1 is the revised and updated market analysis of market for the minimum set of leased lines. Annex 2 provides a summary of the consultation on NPT s notification of decisions in this market. 9. Chapter 2 contains a designation of an undertaking with significant market power on the basis on the market analysis in Annex 1. Chapter 3 provides a brief overview of 3 The document is published on NPT s website under the menu selection SMP. 4 Revised ERG Common Position on the approach to Appropriate remedies in the ECNS regulatory framework. 5

6 the regulatory framework for the choice of remedies, while Chapter 4 provides an overview of current specific obligations in the market for leased lines. Chapter 5 discusses the possibility of the emergence of sustainable competition in the relevant market, an issue that matters for the choice of specific obligations, cf. also NPT s remedies document. Chapter 6 provides an overview of the competition problems in the market. NPT has based this overview on the overview of competition problems that are described in NPT s remedies document. Chapter 7 provides a discussion of some general issues surrounding the choice of remedies. Chapter 8 is the most extensive chapter in the document. In it NPT reviews its choices in the use of remedies in light of the preceding chapters and the market analysis in Appendix 1. Against the background of this review, the actual imposition of specific obligations is formulated in Chapter 9, while the removal of existing obligations appears in Chapter Designation of an undertaking with significant market power 10. In light of the market analysis (cf. Annex 1) and notification of decisions, pursuant to Electronic Communications Act 3-3, NPT is designating Telenor ASA as an undertaking with significant market power in the market for the minimum set of leased lines (Market 7). 11. For further justification see Annex 1. 3 Regulatory basis for the choice of remedies 12. Pursuant to Electronic Communications Act 4-12, undertaking with significant market power in all or part of the stipulated minimum set of leased lines is obliged to offer such leased lines on non-discriminatory conditions and with cost oriented prices. Undertaking with significant market power in Market 7 is also obliged to prepare and publish terms of delivery for the minimum set of leased lines. 13. In 3-4 the Act also sets forth a general authorisation regarding obligations for an undertaking with significant market power. 14. In special cases, obligations may also be imposed beyond what follows from these provisions, as long as the consultation procedure in Electronic Communications Act 9-3 is complied with. 15. In its remedies document 5 NPT has discussed the principles that in general will govern its choice of remedies: Principle 1: Substantiated decisions shall be prepared in accordance with the national regulatory authority s obligations pursuant to the directives. Principle 2: The interests of consumers shall be protected when duplication of infrastructure is not likely to be feasible. Principle 3: In markets where NPT considers it likely that duplication of infrastructure may be attained over time, NPT will ensure that its use of 5 See NPT s general remedies document, dated 5 December

7 remedies lends support to the transition to a market characterised by sustainable competition. Principle 4: Obligations shall be designed so that they provide incentives for compliance. 16. In accordance with the general principles of administrative law and the proportionality principle in EC law, the obligations NPT imposes on undertakings with significant market power shall be appropriate to, and not go further than necessary for, furthering the purposes of the Electronic Communications Act. The basic purposes are stated in Electronic Communications Act 1-1, which reads: The purpose of the Act is to secure good, reasonably priced and futureoriented electronic communications services for the users throughout the country through efficient use of society s resources by facilitating sustainable competition, as well as stimulating industrial development and innovation. 17. In addition to this basic purpose, a special purpose provision has been placed in Electronic Communications Act 3-4 third paragraph. The provision stipulates specific, relevant considerations for the use of specific remedies: Obligations in accordance with the first and second paragraphs that are imposed in the individual case shall be appropriate to promote sustainable competition, as well as facilitating national and international development in the market. The Authority may amend obligations imposed. 4 Current obligations 18. Telenor s former licence was issued by the Ministry of Transport and Communications on 2 March 1999 pursuant to Act No. 39 of 23 June 1995 relating to telecommunications (Telecommunications Act). Act No. 83 of 4 July 2003 relating to electronic communication (Electronic Communications Act) entered into force on 25 July At the same time, the Telecommunications Act was repealed. Pursuant to Electronic Communications Act 13-2 Transitional regulations, individual decisions issued pursuant to or on the authority of the Telecommunications Act that are in force when the Electronic Communications Act enters into force will continue to apply. This means that obligations imposed on an undertaking with significant market power pursuant to or on the authority of the old Act will be maintained, until the market analysis has been done and new individual decisions are issued pursuant to the new Act are implemented. 19. In its remarks on the provisions, Proposition No. 58 ( ) to the Odelsting states that the obligations in Telenor s licence are to be maintained for a provider of access to the public telecommunications network, public telephone services and leased lines with significant market power for the provision of access to the public telecommunications, public telephone services or leased lines. 20. On 21 March 2001 NPT issued a decision designating Telenor as having significant market power in the market for leased lines. 6 The decision regarding significant market power was the basis for the licence obligations and thus being subject to specific regulation. 6 Case no. 2000/

8 Universal service obligation 21. Telenor is subject to a universal service obligation for the minimum set of leased lines, cf. licence Part II Section 5. The universal service obligation applies to any location with permanent year-round settlement or businesses within the entire geographic scope of the licence. 22. The universal service obligation pertains to 64 kbit/s digital lines, 2048 kbit/s digital unstructured circuits and 2048 kbit/s digital structured circuits, cf. Annex I to the licence. Cost-oriented prices 23. The minimum set of leased lines shall be provided at cost-oriented prices, cf. licence Part IV section 14, Public Telecommunications Networks and Services Regulations 3-8 first paragraph and Telecommunications Act 2-2. The remarks from 1997 on the regulations stated that the setting of prices should be based on the actual cost of production and delivery, including a reasonable return. In the regulatory accounts from Telenor these costs calculated on the basis of historic costs. Published reference offer 24. Telenor is obliged to prepare and publish a reference offer and price list, cf. Telecommunications Act 2-2, cf. Public Telecommunications Networks and Services Regulations 3-3, 3-5 and clarifies what a published offer is to contain and how it is to be published. Besides the terms of delivery in 2-5 and standard contract pursuant to 3-3, such a reference offer is to include all important information. The reference offer shall contain the geographic area of delivery, any considerable capacity limitations on delivery and the services the individual price elements cover. In addition the reference offer shall contain discounts and criteria for discounts and price calculation methods for services without a flat rate. Properties of a technical and physical nature, including the interface used at network termination points, as well as the standards that are used, and conditions for connecting telecommunication termination equipment shall also be included in the reference offer. Any change to this reference offer must be reported to the affected end users (and undertakings) no later than two months before the changes are implemented, cf. Public Telecommunications Networks and Services Regulations 3-5, third paragraph. Pursuant to Public Telecommunications Networks and Services Regulations 3-6, the terms and conditions for the provision of leased lines shall also include the procedure for ordering leased lines, the contract period, i.e. the period for which the contract normally applies, as well as the minimum contract period that the customer must accept, normal delivery time and normal fault correction time. If different categories of fault correction are offered for the same type of leased line, the normal fault correction time must be given for the different categories. Terms and conditions of delivery 25. Telecommunications Act 3-5, cf. Public Telecommunications Networks and Services Regulations 2-5, specifies the content of the terms and conditions of delivery. These terms and conditions shall contain provisions regarding deadlines for connection and delivery, quality, price, connected service, procedures in the event of non-payment, methods for measuring usage, maintenance, deadlines for fault correction, liability in damages and compensation and refund schemes. In addition, affected parties must be notified within a reasonable time of interruptions due to maintenance or upgrades. 8

9 Content of the reference offer 26. Public Telecommunications Networks and Services Regulations 3-3 specifies the content of a reference offer for an operator with significant market power. The reference offer is to be prepared on the basis of the terms and conditions of delivery in 2-5 of the regulations, discussed above. Obligations for accounting system/regulatory accounts 27. Telenor has an obligation to keep regulatory accounts for leased lines, which ensues from NPT s decision of 21 December 2006 where principles of regulatory accounting (cost accounting) are deepened and precisely defined. Non-discrimination 28. Telenor is subject to an obligation of non-discrimination in Telecommunications Act 2-3, cf. Public Telecommunications Networks and Services Regulations 3-2, for access to leased lines. The non-discrimination condition has two aspects. The first paragraph prohibits discriminating between different external purchasers. The second paragraph prohibits discriminating between internal and external provision. 5 Possibilities of duplicating infrastructure in the market for the minimum set of leased lines 29. According to the account of Principles 2 and 3 in NPT s remedies document, key to the choice of remedies will be whether or not duplication of the infrastructure used in the relevant market is deemed possible (i.e., whether or not bringing about sustainable infrastructure competition is likely) An assessment of whether or not a duplication of infrastructure is probable/possible in the retail market for leased lines will necessarily have to be related to infrastructure in the related wholesale market. It means that in this connection it is relevant to turn to assessments of whether duplication in the wholesale leased lines markets up to and including 8 Mbit/s (Market 13) is possible, cf. draft decisions on designating undertakings with significant market power and imposing specific obligations in the wholesale leased lines markets. The draft decisions for Market 13 make clear that NPT is applying Principle 2 in the related wholesale market. 31. In NPT s view, it makes sense to emphasise in Market 7 as well that Telenor controls a nationwide infrastructure for leased lines that is difficult for other undertakings to fully duplicate. Telenor s competitors in this retail market base their services on a combination of owned and leased infrastructure and are in most cases dependent on access in the wholesale market (especially in Market 13) in order to offer leased lines in the form of end-to-end circuits at the retail level. This means that none of Telenor s competitors are able to any appreciable extent to be able to offer end-to-end solutions in this market based solely on their own infrastructure. 32. On the other hand, effective regulation at the wholesale level, especially in Market 13, may facilitate sustainable competition at the retail level, and NPT believes that the obligations imposed in the related wholesale market will have such an impact in the medium term. 7 See further details about Principles 2 and 3 in NPT s remedies document. 9

10 33. In view of this, NPT has concluded that the retail market for the minimum set of leased lines falls under Principle 3 for imposing obligations, cf. Chapter 4 of NPT s remedies document. 34. Obligations of access, price controls, non-discrimination and transparency follow directly from the Electronic Communications Act and Ecom Regulations with regard to the retail market for the minimum set of leased lines. This means that the choice of Principle 2 will have less importance for the regulation of this relevant market. 6 Competition problems 6.1 General competition problems 35. Specific obligations imposed on undertakings with significant market power are to be suited to remedying actual or potential competition problems in the relevant market. Competition problems are understood to be any behaviour by an undertaking with significant market power intended to drive competitors out of the market, prevent potential competitors from entering the market and/or exploit consumers. The use of specific obligations in accordance with the new regulatory regime is not conditional on whether exploitation of market power is actually taking place. It is sufficient that a competition problem can potentially arise under given conditions. 36. In this connection it should be mentioned that until now Telenor s leased lines services have been relatively strictly regulated, for which reason it may be difficult to find specific examples of competition problems that have arisen in the Norwegian market. 37. NPT s remedies document provides a general description of potential competition problems within the relevant markets identified by NPT. The document identifies 27 standard competition problems and is based on the practical experience of national regulatory authorities in Europe. 6.2 Specifics on competition problems in the retail market for the minimum set of leased lines 38. The draft decisions on designating undertakings with significant market power and imposing specific obligations in the wholesale leased lines markets contain a discussion of potential competition problems in the markets for leased lines at the wholesale level. NPT has identified various potential competition problems relating to vertical leveraging, horizontal leveraging as well as single market dominance. 39. Several of the competition problems that are discussed in the draft decisions for the wholesale leased lines markets (Markets 13 and 14) and are related to vertical leveraging and single market dominance have an indirect impact in the retail market for the minimum set of leased lines. Instead of repeating the discussion of these competition problems, NPT has found it appropriate rather to refer to the discussion of these kinds of competition problems for Markets 13 and In NPT s view, competition problems related to vertical leveraging should be discussed when 8 under the menu selections SMP and EEA consultations. 10

11 assessing remedies at the wholesale level, and such competition problems are less relevant when assessing remedies at the retail level. 40. In view of this, the review below of the competition problems connected with Market 7 is brief and concentrates on competition problems relating to horizontal leveraging at the retail level Horizontal leveraging 41. Horizontal leveraging denotes situations where an undertaking with significant market power in a market tries to leverage market power from this market to other related markets. Bundling and cross-subsidisation are examples of potential competition problems Bundling 42. Bundling leased lines services with other electronic communication services is regarded to be the most relevant form of horizontal bundling related to the retail market for the minimum set of leased lines. This kind of bundling may involve giving business customers 9 discounts or other benefits if they buy both leased lines and other services from Telenor that they would not have got if they purchased leased lines only. Since Telenor is also dominant in most of the other retail markets for electronic communication services, it may be better positioned to tie business customers to them by offering integrated communications solutions for business customers than competitors in the retail market that do not have as extensive a product portfolio Cross-subsidisation 43. Horizontal cross-subsidisation involves pricing in two retail markets whereby excessive pricing in one market serves to compensate for underpricing in the other market. The competition problem is related to, and overlaps in part with, the competition problem bundling above. 44. Horizontal cross-subsidisation may be a competition problem in the market for the minimum set of leased lines if Telenor s charges in this market are not regulated. 45. Furthermore, regulating standard charges is not necessarily sufficient to prevent horizontal cross-subsidisation in this market. In this connection, NPT refers to the discussion of possible anti-competitive effects of price discrimination in the discussion of single market dominance for Market 13, in section of the draft decisions for Markets 13 and In NPT s view, similar effects of contract pricing may potentially also occur in Market 7. Even though this is a competition problem primarily relating to single dominance in the form of price discrimination it may be relevant with regard to horizontal leveraging in the form of cross-subsidisation if business customers who demand all-in-one communications solutions that cover more than leased lines services get integrated services from Telenor based on contract pricing. 9 Although in theory this may also apply to residential customers, in practice this is not especially relevant, since the use of leased lines in the residential market is very limited under the menu selections SMP and EEA consultations. 11

12 6.2.2 Summary of the competition problems 46. As mentioned above, several of the competition problems connected with vertical leveraging and single market dominance that are discussed in the draft decisions for the wholesale leased lines markets have an indirect impact in the retail market for the minimum set of leased lines. 47. With regard to vertical leveraging, it is chiefly various forms of discriminatory behaviour that pose the greatest potential competition problems. These include price discrimination, which can put a price squeeze on Telenor s competitors in the retail market, and discrimination related to other factors, which can limit competitors opportunities in the retail market. 48. Of the competition problems connected posed by single market dominance, it is primarily excessive prices and price discrimination in Market 13 that represent relevant competition problems affecting competition in the retail market. 49. Horizontal leveraging of market power relates to the potential competition problems product bundling and cross-subsidisation between the minimum set of leased lines and other electronic communication services that Telenor offers. 7 General discussion of remedies 50. The following is an account of some factors of a general nature related to the choice of remedies in the market for the minimum set of leased lines. The actual choices of specific obligations are discussed in detail in Chapter Proportionality 51. The proportionality principle is discussed in detail in Proposition No. 58 ( ) to the Odelsting in a comment on Electronic Communications Act 3-4. These remarks contain the following brief comment on the proportionality assessment that the national regulatory authority is to carry out in connection with imposing obligations: It is stated here that: The obligations to be imposed shall be proportionate, be based on fair and objective criteria and be accessible to the public. Proportionate means that obligations imposed regarding access or significant market power with appurtenant conditions are to be suited to compensating for a lack of sustainable competition and are to help to promote consumer interests and, if possible, contribute to national and international development. The burdens of the remedies imposed are to be proportionate to what they seek to achieve. This also opens up the possibility for the authorities to tie the obligations to certain segments of the relevant market, if appropriate. 52. This principle means that in selecting among several alternatives, all of which can promote the objectives equally effectively, NPT should choose the least burdensome alternative for an undertaking with significant market power. Under the circumstances an absolute requirement will also have to be put in place not to impose obligations that are disproportionately burdensome. 12

13 53. The content of the proportionality principle is also described in relative detail in NPT s remedies document. There it states that the principle of proportionality implies that measures should be suited to realising the objective behind them, should not be in excess of what is necessary in the individual case and the benefits of the intervention are to outweigh the burdens. 54. However, neither the proportionality principle nor the principal of minimal regulation may be cited in support of the argument that according to the new regulatory framework, NPT shall not and does not have cause to impose burdensome obligations on undertakings with significant market power. The core of these principles is that one should not impose stricter obligations than necessary. However, the imposition of more burdensome obligations, such as price controls, may very well be proportionate or necessary in markets where less burdensome obligations are not regarded to be adequate for reaching the objective of the regulation. 7.2 Synergy among remedies 55. The specific obligations that NPT can impose on undertakings with significant market power are largely closely related. The linkages between the various obligations are discussed in detail in the section 3.2 of ERG remedies document, and NPT refers to the discussion there. 56. There are particular reasons to point out that, by themselves, the remedies accounting separation, cost accounting and publishing reference offers etc. have little independent effect, They are primarily meant to support any obligations of nondiscrimination and/or price controls. 8 Assessment of specific obligations 8.1 Introduction 57. In this chapter, NPT will review the specific obligations that are to be imposed on Telenor as an undertaking with significant market power in the market for the minimum set of leased lines. 58. For practical reasons, NPT will begin the review with a discussion of access obligations. Then NPT will consider price and accounting controls. Then the obligations of non-discrimination, publication and reference offer (transparency) will be discussed. Finally it will assess the remedy accounting separation. 59. After reaching a tentative conclusion on each of the individual obligations, NPT will do an overall proportionality assessment in section 8.7 of the obligations imposed in the market for the minimum set of leased lines. 60. Section 8.8 contains an assessment of the effect of the use of remedies in all leased lines markets in the aggregate, i.e. for Markets 7, 13 and

14 8.2 Access 61. Authorisation for imposing requirements for access is found in Electronic Communications Act 4-12, cf. Ecom Regulations 2-3. In other words, an access obligation follows directly from an Act of law and regulations regardless of identified competition problems. Market 7, the minimum set of leased lines, is a retail market, so that the access obligation is meant to protect the interests of end users. The Universal Service Directive discusses the access obligation for the minimum set of leased lines in Article 18, cf. Annex VII of the directive. 62. In accordance with previous regulations, Telenor has been subject to a universal service obligation for the minimum set of leased lines. The access obligation in the Electronic Communications Act corresponds in practice to the universal service obligation. Since the market for the minimum set of leased lines is a retail market, NPT perceives the obligation as pertaining to the provision of the minimum set of leased lines to end users. 63. The minimum set of leased lines shall correspond to that which follows from law and regulations in force at any given time. The minimum set of leased lines has been set in Ecom Regulations 2-3 second paragraph: a) ordinary quality voice bandwidth based on EN and EN , b) special quality voice bandwidth based on EN , EN and EN c) 64 kbit/s digital based on EN and , d) 2048 kbit/s digital unstructured based on EN and EN , e) 2048 kbit/s digital structured based on EN and EN (NPT notes that 2-3 second paragraph litra b is incorrect. EN is incorrectly included in 2-3 second paragraph litra b, but since we have quoted the Ecom Regulations, no correction has been made here). Conclusion 64. In the market analysis Telenor was found to have significant market power in the market for the minimum set of leased lines, cf. Annex 1. In the market analysis no reason was found to distinguish between various types of products (capacities) within this market. Thus, pursuant to Electronic Communications Act 4-12, cf. Ecom Regulations 2-3, Telenor is obliged to deliver the following types of circuit: bandwidth for ordinary voice quality based on EN and EN , bandwidth for special voice quality based on EN and EN kbit/s digital based on EN and , 2048 kbit/s digital unstructured based on EN and EN , and 2048 kbit/s digital structured based on EN and EN Price and accounting controls 65. The discussion in Chapter 6 in the draft decisions on the use of remedies in the wholesale leased lines markets makes clear that price discrimination, excessive pricing and cross-subsidisation are among competition problems that may necessitate 14

15 price and accounting controls in this retail market. To a certain extent these competition problems can be remedied at the wholesale level. 66. Pursuant to Annex VII to the Universal Service Directive, price controls may be imposed as a specific obligation following a detailed assessment. However, it follows directly from Electronic Communications Act 4-12, cf. Ecom Regulations 2-3, that the minimum set of leased lines in Norway shall be offered at cost-oriented prices. For that reason NPT assumes that the legislature considers there to be a need for undertakings with significant market power to be subject to such price controls. This requirement is, in practice, a continuation of earlier regulation. 67. In NPT s view, in this context an obligation of cost-oriented prices implies that Telenor s prices are to be based on the actual cost of producing and supplying leased lines, including a reasonable rate of return on capital employed. In the wholesale market for leased lines with capacities up to and insluding 8 Mbit/s (Market 13), NPT has concluded that the prices shall be based on fully allocated historical costs. NPT believes that it is appropriate for the same principle to be applied in the wholesale markets and retail markets, respectively, for leased lines. Therefore, NPT has concluded that the prices in the market for the minimum set of leased lines are also to be set on the basis of fully allocated historical costs. If at a later date it becomes relevant to employ price controls in form of price cap in Market 13, as the Authority has indicated, NPT will also consider a price cap regulation as a possible way to operationalise the cost orientation obligation in the retail market for leased lines. 68. In principle, NPT would like to follow up the obligation of cost orientation at a higher level of organisation, i.e. for the minimum set seen in the aggregate. Although this is deemed to be sufficient, nonetheless the Authority will not rule out the possibility of situations arising that may necessitate applying the obligation at a more detailed level. 69. Electronic Communications Act 4-9 third paragraph contains a provision on cost accounting: The Authority may impose on a provider as mentioned in the first paragraph the use of specific systems for running cost accounts. A description of the systems imposed for running cost accounts, including an overview of the main categories for costs and what cost allocation rules are used, shall be made public. Confirmation that the cost accounts are in accordance with the system laid down for running the cost accounts shall be prepared by an external auditor and shall be published annually. 70. For instance, cost accounting may be appropriate for monitoring that the obligation of cost-oriented prices is being met. In this instance, directing Telenor to prepare cost accounts will be necessary to enable NPT to check that Telenor s charges comply with what may be said to be a cost-oriented level, which also means that a distinction must be made between the various capacity classes included in the minimum set. 71. As pointed out in Chapter 4, Telenor has until now been obliged to keep regulatory accounts (cost accounts) for transmission capacity (leased lines). Ever since the mid-1990s Telenor has reported the profitability for various capacities. Even though having to keep regulatory accounts for the minimum set of leased lines will involve impose a certain burden on Telenor, NPT regards the regulatory burden 15

16 related to continuing this to be relatively light, as the system for this is already in place. 72. On this basis, NPT will direct Telenor to implement a cost accounting system based on fully allocated historical costs for the minimum set of leased lines, on the whole according to similar principles that the company has been subject to in recent years ONP reports with appurtenant supplemental reporting to NPT. In Section 9.2 NPT has specified the overarching principles for implementing the cost accounting system that will apply to the minimum set of leased lines. Conclusion 73. It follows from Electronic Communications Act 4-12 that the minimum set of leased lines shall be offered at cost-oriented prices. The prices shall be set on the basis of Telenor s fully allocated historical costs, including a reasonable rate of return. To monitor whether the obligation of cost-orientation is being met, NPT regards it to be necessary to direct Telenor to implement a cost accounting system in accordance with the rules stated in section 9.2. This is, for all intents and purposes, a continuation of current principles for running cost accounts. NPT may issue additional provisions in subsequent decisions. 8.4 Non-discrimination 74. Authorisation for imposing an obligation of non-discrimination is found in Electronic Communications Act 4-12, cf. Ecom Regulations Furthermore, it follows directly from the non-discrimination provision of Annex VII (1), cf. Art. 18, of the Universal Service Directive that there is to be a nondiscrimination obligation in this market. In other words, a non-discrimination obligation follows directly from an Act of law and regulations regardless of identified competition problems. Moreover, NPT refers to Chapter 6, specifically to the discussion of the competition problems in Markets 13 and 14, where it is pointed out as a potential competition problem that Telenor, as an undertaking with significant market power, may have incentives to discriminate between various undertakings on price or other terms. 76. Non-discrimination does not necessarily imply that all operations are to be given identical terms, but that any differences in terms that are granted are based on objective criteria. The point of non-discrimination is that undertakings with significant market power are to treat similar situations in a similar manner with regard to price, information, and other terms, regardless of which customer they pertain to. 77. To a certain degree, discriminatory behaviour can be redressed through price control and/or transparency obligations. For example, an obligation of cost-oriented prices can make it difficult to discriminate on price. An obligation of transparency can make it more difficult to maintain discriminatory practices, inter alia since such conduct becomes more visible. However, NPT finds that these obligations will not fully be able to prevent any discriminatory behaviour by Telenor. Conclusion 78. A non-discrimination obligation for the minimum set of leased lines follows from Electronic Communications Act This will counteract Telenor s ability to engage in discriminatory behaviour. 16

17 8.5 Publication and reference offer General - publication and reference offer 79. Telenor shall prepare and publish a reference offer for the minimum set, cf. Electronic Communications Act 4-12, second paragraph. In 4-12 the Act states that the authorities may make exceptions to the requirement for publication if it should appear unreasonable. 80. Electronic Communications Act 4-6 specifies in detail the content of the obligation. Specific obligations may be imposed on an undertaking with significant market power to publish specified information and to prepare and publish reference offers for electronic communications networks and services (reference offers). Such obligations are usually referred to as transparency obligations. In and of themselves, transparency obligations are rarely sufficient to remedy competition problems. The primary function of transparency obligations is rather to make other obligations more effective. For example, for access issues, it will help to simplify and speed up negotiations if the key terms for connection follow a reference offer that is publicly available. Furthermore, a transparency obligation will make it easier for other undertakings and NPT to monitor compliance with obligations for non-discrimination. 81. Besides the fact that transparency obligations may be imposed specifically under Electronic Communications Act 4-6, there are also provisions regarding transparency in Electronic Communications Act 2-4 and Ecom Regulations 1-7. The latter provisions are applicable regardless of whether or not an undertaking has significant market power, and may also be supplemented with specified obligations under Electronic Communications Act Above it appears that an obligation of non-discrimination is imposed on Telenor pursuant to Electronic Communications Act It follows from Electronic Communications Act 4-12, second paragraph, that Telenor is to prepare and publish terms of supply for the minimum set. The scope of the transparency obligation is specified below Specifics on terms for publication and reference offer 83. Proposition No. 58 ( ) to the Odelsting, p. 107 on the Electronic Communications Act discusses the reference offer as follows: To fulfil the purpose of the provision, publication shall inter alia cover terms and conditions regarding quality, technical specifications, delivery times, prices and discounts, further information about any compensation or repayment schemes, fault correction, offered level of service, standard contract terms, including information about the minimum contract period and the appeals process. 84. In NPT s opinion, the agreements are to be continuous updated and are to contain relatively detailed provisions regarding matters of importance for purchasers of the minimum set of leased lines. On this basis, NPT believes that at a minimum the reference offer must contain: a description of service offered, general contractual terms and conditions, prices and price calculation methods, 17

18 any discounts and criteria for discounts, including criteria for contract pricing, geographical supply area, any significant capacity limitations on delivery, characteristics of a technical and physical nature, including interfaces and the standards that are used, agreed quality level, maintenance services and provisions regarding compensation for failure to meet the agreed quality level. 85. The reference offer is to be sufficiently divided into individual elements, to ensure that customers are not obliged to pay for services, functions or outputs that are not necessary for the requested service. 86. Provisions regarding compensation are new in relation to previous content requirements related to reference offers. NPT believes it is appropriate to introduce a requirement for compensation for failure to meet the agreed quality level, since this will reduce Telenor s incentives to discriminate as far as the quality of its services is concerned. The provisions on compensation are in accordance with Principle 4 in NPT s remedies document. 87. NPT may, if necessary, also further specify the content in reference offers. This follows from Electronic Communications Act 4-6 first paragraph. 88. The reference offer shall be published. This is to include all criteria forming the basis of discounts, including criteria for contract pricing. Publishing on Telenor s website is considered to be a satisfactory way of publication. 89. To simplify the negotiation process and/or prevent the negotiation process from being unduly prolonged, the reference offer shall as much as possible comprise documentation for a complete agreement. 90. If Telenor is to conclude an agreement for leased lines in which the prices deviate from the published reference offer, NPT deems it necessary to direct Telenor to send a copy of such agreements to NPT to ensure that they are in compliance with the obligations of non-discrimination and cost-oriented prices. Notification of NPT shall take place without undue delay and no later than two weeks after the signature date. This requirement is authorised by the general duty to provide information mandated by Electronic Communications Act NPT would like to point out that any deviations from published standard prices must be objectively justified and be in accordance with published discount criteria. 91. According to Ecom Regulations 1-8 second paragraph, the notice period for changes in retail agreements is one month: Pursuant to Section 2-4, second paragraph, of the Ecom Act, providers of electronic communications networks used for public electronic communications services or providers of such services shall give notice of changes in the contract at least one month before the changes are implemented. The duty to give notice applies to changes that must be assumed to have some significance for users. If the change is to the disadvantage of users, users shall at the same time be informed of the right to cancel the contract free of charge. 18