Case FR/2007/0669: Wholesale voice call termination on individual mobile networks Mainland France and overseas territories

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1 EUROPEAN COMMISSION Brussels, 13/09/2007 SG-Greffe (2007) D/ Mr Paul Champsaur Président de l Autorité de Régulation des Communications électroniques et des Postes 7, square Max Hymans Paris Cedex 15 France Fax: Dear Mr Champsaur, Subject: Case FR/2007/0669: Wholesale voice call termination on individual mobile networks Mainland France and overseas territories Comments pursuant to Article 7(3) of Directive 2002/21/EC 1 I. PROCEDURE On 24 July 2007 the Commission registered a notification by the French national regulatory authority, Autorité de Régulation des Communications Electroniques et des Postes ("ARCEP"). The notification concerns wholesale voice call termination on individual mobile networks in (i) mainland France and (ii) the French overseas territories 2. ARCEP notified for the first time in 2004 the wholesale markets for voice call termination on individual mobile networks in mainland France 3 and French overseas territories 4, and in 1 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 (the Framework Directive ), OJ L 108, , p Market 16 in the Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and services markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC (the Recommendation ), OJ L 114, , p See FR/2004/0104, SG-Greffe (2004) D/ of See cases FR/2004/0120, SG-Greffe (2005) D/ of , and case FR/2007/0596 (concerning Outremer Télécom), SG-Greffe (2007) D/ of Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 2006 a separate market for SMS termination 5. Further, the Commission received in 2005 two notifications concerning details of the cost accounting systems to be used by the operators that were designated as having significant market power (SMP) 6, and in 2006 a notification relating to price control obligations of the MNOs in mainland France 7. The current second round notifications contain two main modifications with regard to the earlier notifications. In the first instance, ARCEP proposes to update the list of mobile network operators (MNOs) active in the overseas territories. Secondly, ARCEP intends to modify the price control obligations of the MNOs, in order to reduce mobile termination rates (MTR). The national consultation 8 expires on 14 September Pursuant to article 7(3) of the Framework Directive, national regulatory authorities ("NRAs") and the Commission may make comments on notified draft measures to the NRA concerned. II. II.1. DESCRIPTION OF THE DRAFT MEASURE Market definition In line with the recommendation, ARCEP envisages defining a separate product market for wholesale voice call termination by each individual MNO, regardless of the technology used to terminate calls (i.e. both 2G and 3G mobile networks). In particular, ARCEP considers that currently calls to fixed numbers, SMS and calls to another number used in connection with a WiFi compatible terminal 10 do not constitute substitutes for calls to mobile numbers at retail level. Consequently, ARCEP does not believe that these technologies exercise a competitive constraint on a provider of wholesale voice call termination services on its network. Additionally, ARCEP states that incentives for the use of GSM gateways 11 have decreased because of the reduction of MTRs in Therefore ARCEP does not include GSM gateways in the relevant product market. According to ARCEP, the geographic scope of each market coincides with the geographic coverage of each network. ARCEP therefore defines relevant markets corresponding to the networks of the following MNOs in mainland France: Bouygues Télécom s.a. ( Bouygues ); Orange France s.a. ( Orange ); 5 See case FR/2006/0413, SG-Greffe (2006) D/ of See case FR/2005/0275, SG-Greffe (2005) D/ of and case FR/2007/0592, SG-Greffe (2007) D/ of See case FR/2006/0461, SG-Greffe (2006) D/ of In accordance with Article 6 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 (the Framework Directive ), OJ L 108, , p ARCEP already carried out a first national consultation from 14 March 2007 to 16 April ARCEP considers in particular that (i) the use of WiFi compatible terminals is currently not widespread, (ii) the users must be within the reach of a WiFI hotspot, and (iii) the caller must know the specific number used for the WiFi terminal. Nevertheless ARCEP will revise its assessment in the event of significant developments on the market. 11 GSM gateways are devices used to enable fixed telephone networks to connect directly to mobile networks via a mobile telephony radio link. The purpose of such GSM gateways is to avoid fixed-to-mobile interconnection charges and to benefit from lower retail mobile-to-mobile charges. 2

3 SFR s.a. ( SFR ). In the French overseas territories, ARCEP envisages defining relevant markets for wholesale call termination on the networks of the following MNOs: Dauphin Télécom s.u. ( Dauphin ), on St. Martin and Saint-Barthélemy; United Telecommunications SCE Caraïbe ("UTS Caraïbe"), on St. Martin and Saint- Barthélemy; Digicel Antilles Françaises Guyane s.a ("Digicel"), on Martinique, Guadeloupe, and French Guiana; Orange Caraïbe s.a. ( Orange Caraïbe ), on Guadeloupe, Martinique and French Guiana; Outremer Télécom ("Outremer") on Martinique, Guadeloupe, French Guiana, Réunion and Mayotte; Société Réunionnaise du Radiotéléphone s.a. ( SRR ) on Réunion and Mayotte; Orange Réunion s.a. ( Orange Réunion ), on Réunion and Mayotte; Saint-Pierre-et-Miquelon Télécom s.a.s. ( SPMT ) in Saint-Pierre-et-Miquelon. II.2. Assessment of market power ARCEP considers that Orange, SFR, Bouygues, Orange Caraïbe, SRR, Dauphin, Digicel, Outremer, Orange Réunion, SPMT and UTS Caraïbe have SMP on the market for voice call termination on their individual mobile networks, based on the following criteria: (i) 100% market share in terminating calls on their respective networks, (ii) control of infrastructure that cannot be duplicated, (iii) lack of countervailing buying power both of end users and other operators, and (iv) lack of potential competition and high entry barriers. II.3. Regulatory remedies ARCEP envisages imposing the following obligations on all SMP undertakings: access to and use of specific network facilities; transparency 12 ; non-discrimination; price control; cost accounting and accounting separation. Regarding the price control obligation, ARCEP distinguishes three groups of operators. In the first instance, ARCEP imposes a cost orientation obligation on the three operators in mainland France. Given that the costs calculated on the basis of the rules notified in case FR/2007/0592 are significantly lower than the MTR currently in force, ARCEP proposes to introduce a glide path for the three years timeframe of the notified market review in order to achieve a "competitive level" over a reasonable period of years. ARCEP, thus intends to impose a price cap of for the MTR of Orange and SFR and of for the MTR of Bouygues between 1 January 2008 and 30 June Taking into consideration that even this first step in the glide path leads to maximum MTR that are lower than in other big Member States of the EU, ARCEP underlines the need for harmonisation of MTR and the 12 The MNOs active in mainland France, namely Orange, SFR and Bouygues, will also be obliged to publish a reference offer. 3

4 underlying cost accounting principles at European level. According to ARCEP, such harmonisation should be driven by the European Commission and NRAs, within the framework of the European Regulators Group. ARCEP is thus of the opinion that a further reduction of maximum MTR between 30 June 2009 and 31 December 2010 depends on the outcome of European harmonisation and will determine MTR for this period in a subsequent decision. ARCEP states that in principle, MTR should be symmetric for all operators. Nevertheless asymmetric MTR could be justified during a transitional period for three reasons according to ARCEP: difference in the frequencies assigned to different operators; different dates of market entry, traffic imbalances, combined with the fact that full cost orientation of all MTR will only be achieved gradually. The operator with the smallest market share, Bouygues, is currently making significant net payments to the other two MNOs that would be higher without asymmetry in MTR, taking into consideration that Orange and SFR are in the position to make attractive offers for on-net calls owing to their large market shares. As of 2010 ARCEP intends not to take differences the frequencies into consideration as a factor that could justify asymmetric MTR. ARCEP considers that also different dates of market entry could be irrelevant from 2010 in the event that the retail market becomes more volatile owing to the new framework for number portability. If this was not the case, a later market entry could justify a limited asymmetry up to 2013 in ARCEP's view. ARCEP states in its reply to the request for information that the schedule for phasing out asymmetries based on the third factor, i.e. on traffic imbalances, which is more decisive than the other two in the view of ARCEP, will depend on the outcome of harmonisation activities at European level. Regarding the MTR of the two biggest operators in the overseas territories, Orange Caraïbe and SRR, ARCEP envisages imposing a cost orientation obligation and defines a glide path for three years, leading to a reduction of (i) the maximum MTR of Orange Caraïbe from in 2008 to in 2010, and (ii) of the maximum MTR of SRR from in 2008 to in These maximum MTR exceed the costs of efficient service provision calculated by ARCEP. In its reply to the request for information, ARCEP explained that the glide path for the MTR of Orange Caraïbe and SRR is defined for three years because the results of European harmonisation could be less relevant for MNOs operating in overseas territories, where MTR are currently much higher than in mainland France. Nevertheless ARCEP's objective is to bring down maximum MTR to a cost oriented level without causing disproportionate problems for MNOs. As far as the other MNOs operating in the French overseas territories are concerned ARCEP proposes to impose an obligation not to charge excessive prices. In its draft measure, ARCEP sets maximum MTR. Although these maximum MTR are reduced gradually between 2008 and 2010, they exceed the MTR determined for the MNOs in mainland France, Orange Caraïbe and SRR. ARCEP believes that ultimately the MTR of all MNOs should be cost oriented. Nevertheless, ARCEP does not intend to introduce a cost orientation obligation for the operators active in the French overseas territories other than Orange Caraïbe and SRR before the next market review covering the period after 2010, given that these operators serve a very small number of clients in the periphery of the EU. 4

5 III. COMMENTS The Commission has examined the notification and the additional information provided by the ARCEP and has the following comments 13 : Level of MTR in mainland France The Commission notes that the existing levels of MTRs in France are already below those in other large Member States of the EU. ARCEP's draft measure would further reduce MTRs and is therefore welcome as it represents a clear move towards cost orientation. The Commission notes, however, that the costs of efficient service provision as calculated by ARCEP are significantly lower than the maximum MTR imposed on the three MNOs in France between 1 January 2008 and 30 June In this regard, the Commission would like to recall that in previous cases (see for example FR/2006/0461) it was stated that MTRs should be based on the cost of an efficient operator. With regard to ARCEP's observation that differences in approach to regulating the level of MTRs call for the harmonisation of MTR and the underlying cost accounting principles at European level, the Commission has invited regulators to take joint action in order to arrive at a coherent approach to establishing the costs of an efficient operator. The Commission acknowledges the need to determine further reductions in accordance with common principles at the European level. As soon as a common approach has been established at European level the Commission invites ARCEP to revisit its analysis and price control obligation. Asymmetry in the MTR of Bouygues In its comments in case FR/2006/0461 the Commission considered that MTRs should normally be symmetric and that asymmetry requires an adequate justification. It is recognized that, in certain exceptional cases, an asymmetry might be justified by objective cost differences which are outside the control of the operators concerned. The Commission notes that ARCEP justifies asymmetric MTRs for Bouygues with traffic imbalances and significant net payments of Bouygues to the two other operators. However, such traffic imbalances may in fact be caused by the current asymmetric level of MTRs as well as by an on-net/off-net retail price differentiation that is within the control of the operators. For this reason, the Commission stresses the importance of reducing MTRs to the level of costs of an efficient operator which takes into account objective cost differences as defined above. In view of the need to ensure that asymmetries are phased out over time unless objective justifications persist, the Commission notes the transitional nature of the draft measure and the acknowledgement by ARCEP that the different factors presently justifying asymmetry may no longer apply in the future. The Commission further notes that ARCEP makes this move towards symmetric MTRs also dependent on the outcome of harmonisation activities at European level. In this respect, the Commission recalls its earlier comments on the need for a coherent European approach (made in Case BE/2007/0665) in order to ensure that the MTRs of each MNO are brought down to the cost of an efficient operator as soon as possible. Asymmetry in MTR of MNOs active in the French overseas territories ARCEP intends to implement cost orientation of Orange Caraïbe and SRR in a glide path that will lead to a reduction of their MTR to in The MTR of the other MNOs in the French overseas territories could be cost oriented following the 13 Pursuant to Article 7(3) of the Framework Directive. 5

6 third round review of the market. The Commission is aware of the fact that the MNOs active in the French overseas territories operate under conditions that are not necessarily comparable to those in mainland France or other EU Member States. Nevertheless the Commission is convinced that the principles defined for an efficient regulation of MTR apply also in the French overseas territories. Consequently, the Commission invites ARCEP to reassess its measure concerning these MNOs in the light of a common European approach, as soon this has been established, and to revise such decision, if necessary, with a view to reducing MTR in the French overseas territories in a more expedient manner. Pursuant to Article 7(5) of the Framework Directive, ARCEP shall take the utmost account of the comments of other NRAs and of the Commission and adopt the resulting draft measures and, where it does so, shall communicate them to the Commission. The Commission's position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 12 of Recommendation 2003/561/EC 14 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 15 within three working days following receipt whether you consider, in accordance with Community and national rules on business confidentiality, that this document contains confidential information which you wish to have deleted prior to such publication. You should give reasons for any such request. For the Commission, Fabio Colasanti Director General 14 Commission Recommendation 2003/561/EC of 23 July 2003 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC, OJ L 190, p Your request should be sent by INFSO-COMP-ARTICLE7@ec.europa.eu or by fax: